136: How Much Money Do You Need to Invest in Stocks?

Learn how much money you need to invest in stocks.

I worked in the mutual fund industry for most of my career. That's where professional money managers manage a pool of stocks, bonds or a combination on behalf of investors. The investor pays a commission or fee or both for it.

One of the reasons mutual funds became so popular in the last 50 years, was not only because of professional management, ease of purchase, good relative performance and diversification was because they had a low minimum initial investment. Prior to mutual funds, you had to buy shares of stock and that could be expensive. Mutual funds had a $500 or $1,000 minimum and to buy 100 shares, called a round lot, of stocks was 100 x $30 = $3,000 for one stock, which offered no diversification. All your eggs were in one basket.

Today we have more choices of where to invest money - ETF's are the biggest change. We can invest in unmanaged, diversified baskets of stocks, bonds or both. Instead of having a professional manager, it's a static group of stocks, for example. Could buy a biotech ETF with just biotech companies in it. ETFs are priced like a share of stock, so they require very little money to purchase.

But what about if you want to buy shares of stock in a company? How much do you need to have to invest in a single stock or a few stocks?

According to my mentor, William J. O'Neill, "You can begin with as little as $500 or $1,000 and add to it as you earn and save more money."

O'Neil started investing at age 21 with a 5 share purchase of Proctor & Gamble stock!

You can buy shares of one or two companies with $1,000, don't try to buy 10. If you have $10,000, you can buy 3 or 4 good quality stocks. Use my suggestions and only buy companies whose earnings are increasing at an increasing rate. Pay attention to earnings! Don't buy a stock because you like their products! That's only one touch point to consider.

IMO, buying individual stocks is a great hobby and valuable skill to learn. But be careful, if you don't know what you're doing, it's easy to lose all your money. If you take the time to learn and study, you can make great returns. For example, if you bought Facebook (FB) just 3 years ago, a $5,000 investment would have grown to $12,000 or 240%! That's not an isolated incident.

Action plan:

1. Read "How to Make Money in Stocks" - link is on my Resource page. 2. Get your IBD weekly and start studying what they recommend - the IDB 50. (No, I do not receive compensation for recommending this). 3. Start paying attention to who is beating expectations. If you haven't listened to my podcast about Apple (#125), do that because you'll find out what happens to a stock that misses it's targets. It's companies that BEAT expectations that win, companies that don't lose big.