It is often said that it “takes money to make money,” and certainly it is a lot easier to make money once you already have a lot. If you have a million dollars, you can buy an apartment building and make thousands each month in rents, or buy a mutual fund and average a hundred thousand dollars or so in capital gains and dividends each year. With a little planning, one can easily pull in an average of $100,000-$150,000 a year in income from a million dollar nest egg.
The trouble is, most people don’t have a million dollars from which to start. Fortunately, everyone could have a million dollars by the time they retire if they consistently work and invest throughout their lifetime. The secret is to start early and to continue to invest on a regular basis. Putting away say 10-15% of your income throughout your twenties throughout your forties. (Ironically, most people start getting serious about savign and investing when they are int heir mid to late fifties, but if you’ve been saving and investing all along, investing during those years isn’t that important. You can start spending more of your income to enjoy life.
Fortunately, the amount needed to start investing can be saved within a few months by those with a middle class income who are serious about doing so. It takes some sacrifice, but the sacrifices aren’t that great. Doing things like eating in several meals a week, bringing a lunch to work, or buying a used car for cash rather than a new car on payments is all that is needed.
To invest in an individual stock, one needs about $2000-$3000 in cash. This is enough to buy about 100 shares of a stock with a price within the $20-$30 range. Eventually, one would like to build up a position of 500-1000 shares in several stocks with no more in a single stock than one could stand to lose. This can be done over a period of years by selecting a group of stocks and purchasing 100 shares every few months as money is built up.
Some may find single stocks too volatile, however, or may not be good at selecting stocks. Mutual funds, which buy a basket of stocks, are another option. Mutual funds typically have a minimum of $3000-$5000 for the initial purchase. After that, money can be sent in smaller increments.
Another option is to buy an exchange traded fund, or ETF. These trade like stocks, but contain a group of stocks like a mutual fund. The advantage of ETFs are the very low fees, which tend to increase returns over time. Once again, shares of an ETF could be purchased as one raises $2000-$3000 to invest.
Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. 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. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.