Can You Invest a Small Sum of Money?


One common question asked is how much is needed to invest.  The answers to this question will vary depending on whom you ask and what kind of investing you’re looking to do.

The main determining factor is what the transaction costs and other fees.  If it costs $60 per transaction and you’re buying or selling $6000 worth of stock, the transaction costs will not greatly affect your return.  If you are only investing $500, however, and your transaction costs are $20 per trade, it will be difficult to make much headway.

In general it requires at least a couple of thousand dollars in savings before the transaction costs start to become reasonable.  Even in that case, if you are investing in individual stocks, you would only want to buy one stock at a time.  Spreading that $2000-$3000 over two or more stocks would just cost too much in brokerage fees.  Investing in a single stock, however, would involve a significant degree of risk since one wrong move by an executive or even just a down quarter could result in the loss of a substantial amount of your investment.

Another option would be to put money into mutual funds since this would provide greater diversification.  Most mutual funds also have  minimum amounts that can be invested.  Vanguard funds typically have $3000-$5000 minimums.  Other fund companies may have minimums of $10,000, $25,000, or more.  In some cases a smaller minimum can be used to start if regular automated direct deposit of funds from a bank account is started.

Either way, the secret to doing well at investing is to invest regularly.  You should be spending less than you make and putting away money each month.  Each time that you gather up a few thousand dollars (after you have paid off your credit cards and cars and a good emergency fund), buy additional shares of stock or put more into you mutual funds.  Eventually, the proceeds from the stock investments will be enough to provide an income to you and allow you to continue to accumulate shares.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

 

3 comments

  1. I buy as little as $100 worth of stock at a time and pay no fees. I have written extensively on how to do this through DRIP investing.

    I don’t worry as much as some about fees though. If I believe a stock will grow and I am going to benefit from it for many years, I will buy $1,000 worth even if I have to pay a $20 broker fee. Sure it costs me 2% but it is a one time cost and most mutual funds charge 2% a year ongoing.

    Besides every time I am out I drop $20 on a round of beers without giving it a second thought.

    • On the DRIPs you’re using, do you need to buy the initial shares from a broker, or have they started selling directly?

      Yes, I agree DRIPS (Dividend ReInvestment Plans) are a good way to buy a small amount of stock at a time. For someone really to be successful, however, they need to make a commitment to save and invest regularly. I think minimizing fees is also somewhat important. It is true that the original amount of a fee won’t matter that much for really long-term investing, but if you can invest a little more over a long period of time, it will add up as well.

      Thanks for the comment.

      • I agree. There are fees when setting up a DRIP. Broker fee for buying the first share and then a fee for getting that first share put in your name. After that it is years and years of fee free investing.
        You don’t always have to invest a small amount at a time either. Most drips will let you invest up to $30,000 a year!

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