How much capital is the reasonable area for someone new to investing?

Enc

I've recently obtained a position where I can save a decent amount in addition to my retirement, and while I am allocating the majority of my savings to develop a down payment for a house I want to take a portion of that money and try investing in the stock market. What I'm concerned with is what amount is the usual starting rate for investing. Do I need to have the $10,000 insisted by the books I have (most are pre-crash) or could I start investing in the $500 range?

Any advice from those of you who have delved into this market would be appreciated.

GnomeTank

You can start investing with a dollar. Seriously.

I believe a decent site like eTrade that will let you drop cash in to nice safe mutuals has a minimum account of 500 or 1000. There are certainly advantages to having gobs-o-money in your investments, but you can start relatively small.

Deebaser

$500 is a little low for stocks, if only for the trading fees. I'd hold off until you have at least $1000 cash saved (preferably $2000).

Transfer your investing money to a savings account as a place holder. I like Amex savings for the high (LOL) interest rate and the inability to just grab it from an ATM.

GnomeTank

For day trading stocks perhaps, but he can start on mutuals and bonds with 500, no problem.

Neaden

Don't pickbindividual stocks. Picking individual stocks is unlikely to make more money for you the going with a fund. Picking stocks is a hobby like gambling on sports not an ininvestment strategey.

a5ehren

edit: should've read the OP before posting :P

You can start with $500, probably, but transaction fees (if you're active) will eat all of your positive returns unless you put in way more than that. I probably wouldn't start trying to play side investments with less than $5,000 so that you can at least cover your fees when you guess right.

YoSoyTheWalrus

The thing is that your return is probably not going to be worth your time. For example, you'll be able to buy about 5 bonds with $500, and in a year you'll get back something like $25 on the coupons. The return on investment IMO is not worth the stress of having your cash out there. At $500 you've basically just got an expensive and boring hobby. Just make sure to consider the opportunity cost of your research time and other things you could be doing with that cash. If it's still worth it to you then go for it.

Djeet

With $500 you could probably start DRIP investing, but those programs are not for lump-sum investing outside of initial investment. Like you have $50 every 2 weeks to put into buying shares. You'd also have to buy individual stocks which can be OK if it's a dividend paying blue chip, but you'd need multiple DRIPs to be diversified.

I would first decide which financial institution to use (E.g. Vanguard, Fidelity, TD, etc) and figure out the minimum investment for big index fund (like an S&P500 index) and save up and park it there. I think typically you're going to need $3-5K initial investment, but different institutions have different products and most have some way of getting you action for $500 initial. That would be a lot safer as a beginner.

Thanatos

To be perfectly frank, you are almost certainly substantially better off just putting those additional funds towards your down payment on your house.

a5ehren

Thanatos wrote: »

To be perfectly frank, you are almost certainly substantially better off just putting those additional funds towards your down payment on your house.

Yeah. Even at current rates, every dollar down at the beginning saves about 2.4 over a 30-year mortgage. Any investment you get in with $500 isn't going to beat that.

tastydonuts

I thought that this book was kind of helpful in setting things up. It's the 2009 edition, idk if there's a newer one.

How to Invest $50 - $5,000.

EggyToast

If you're young and have a retirement account, you are already in the stock market. It sounds like what you're asking after is investing your more liquid assets into individual stocks in order to build a portfolio? That may simply mimic your retirement portfolio?

Day trading is fun if it's your job and you get a giant salary regardless of whether you make any money off of the stocks. There are plenty of articles out there illustrating fun facts like a cat randomly picking stock picks and outperforming experts/professionals. When I was a kid, I had a basic econ class where we all picked stocks and in 2 months we saw how well we did. I picked a random stock that went from $2 to $6.50. I had no idea what I was doing and I earned a lot of "money." I could've picked a stock that went from $6.50 to $2 in the same timeframe.

If you're looking to do something fun with your money, you have better odds learning a bit about blackjack and going on vacation to a casino. Or skip the casino, and just spend the money on a fun vacation -- the return on vacations is generally fantastic

Enc

This is extremely useful advice, thank you everyone. I'll likely just put more into my retirement funding from this feedback.

Jasconius

you should put it into your house

any part of your house that is not financed is what some might refer to as "a guaranteed rate of return"

i mean yeah retirement fine, but seriously if you want a house just put that money in your house

otherwise you're paying 3.5%+ on a piece of your house that you didn't otherwise have to

Djeet

Bigger down payment and thus less financed is always a good idea, but you'll of course make sure you have enough left for an emergency fund and the incidental costs you're very likely to hit that 1st year of homeownership that you didn't expect: appliances, furnishings, plumbing/HVAC issues, landscaping, pest control, etc.