| Many individuals who want to start investing in the | | | | the balance on the account will normally grow with |
| stock market wonder how much is needed. As the | | | | time (10-20 years) and at a rate higher than inflation, |
| old phrase goes, it takes money to make money. | | | | typically by 5-10%. |
| Obviously someone with $1,000,000 to invest can | | | | The difficulty in investing with small amounts is that |
| make a lot more money than someone with $1000. | | | | there is not enough money to buy positions in several |
| Still, there are investment choices for those of even | | | | companies directly. To gain substantial |
| modest starting amounts. | | | | diversification in individual stocks would require |
| The following are the amounts required to begin | | | | $50,000-$100,000. For this reason, many people who |
| investing in various investment options: | | | | have small amounts to invest buy mutual funds - which |
| Mutual Funds: $1000-$5000 - moderate risk, | | | | are arrangements in which groups of investors pool |
| $20,000-$50,000 - low risk | | | | their moneys together to buy a group of stocks. |
| Exchange Traded Funds: $2000 - $10,000 - moderate | | | | Most mutual fund companies have minimum initial |
| to low risk, $30,000 - $60,000 - low risk | | | | investments in the $1000 to $5000. Some will also |
| Individual stocks: $2000-$5000 - high risk, | | | | allow investors to invest less provided that they sign |
| $20,000-$50,000 - moderate risk, $100,000 and above | | | | up for automated purchase such that a fixed amount |
| - low risk | | | | is invested each month. |
| Note that for each of the investment options the | | | | Another consideration, however, when starting out in |
| amount of risk varies with the amount invested. The | | | | investing is that while one does not have a lot of |
| reason is that larger amounts allow for greater | | | | money to invest, the amount that could be lost is also |
| diversification. | | | | fairly modest. If an individual only has $2000 to invest, |
| Investing involves taking on additional risk in order to | | | | while the entire amount could be lost if invested in a |
| get additional reward - income. While a savings | | | | single stock, the $2000 loss could be easily regained |
| account carries little risk of the account balance | | | | through work. It therefore may be worth the risk for |
| declining, the amount of income received is actually | | | | the possible gains. (Note that a typical position in a |
| not enough to keep up with inflation. Over a period | | | | stock is 100 shares, so $2,000 would be needed to |
| of years your account balance will actually be | | | | buy 100 shares at about $20 per share. Stocks |
| declining. Real estate will basically keep up with | | | | trading at less than about $10 are fairly risky and |
| inflation, although investing in the right markets at the | | | | usually should be avoided.) If the individual could not |
| right time can generate returns above inflation. | | | | afford the $2000 loss, mutual funds should be |
| Renting properties, especially if the house is entirely | | | | purchased or the individual should wait to invest when |
| paid for so that the amount lost to inflation is balanced | | | | on firmer financial footing. |
| by the rise in the value of the house and the rents | | | | Whether investing in mutual funds (or exchange traded |
| received, minus upkeep and taxes, is a good way to | | | | funds, which function in a similar manner but are |
| receive income above inflation. | | | | purchased on an exchange like a stock) or in individual |
| Stocks provide a unique niche in that the growth rate | | | | stocks, an investor should plan to put money away |
| for stocks is above that of inflation, and yet the risk | | | | regularly. One should be putting away at least a few |
| involved is not so substantial. While there is a | | | | hundred dollars from each paycheck in a savings |
| possibility that the whole amount invested may be | | | | account. Each time that an individual raises a couple |
| lost, the likelihood is fairly low. Also, the likelihood of a | | | | of thousand dollars, that money could be used to buy |
| total loss declines to approximately zero if several | | | | more shares of stock. If investing in mutual funds, |
| stocks are bought rather than just one or two. This | | | | those funds could be added directly to buy more |
| process, called diversification, also causes the amount | | | | shares of the mutual fund with each paycheck since |
| of volatility in account balances to decline since stocks | | | | mutual funds typically accept smaller amounts after |
| that go down are balanced by stocks that go up. | | | | the account minimum is met. |
| Because the economy in general is normally growing, | | | | |