When to Invest in Stocks

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When is the right time to invest in stocks? All the time! Investing helps grow your money and is a huge part of setting yourself up for financial success. Without it, you’re severely limiting your potential wealth in the future.

However, that doesn’t mean you should jump into investing prematurely. There is always the very real possibility of losing money. So, let’s go over a few different aspects of determining when is the right time for you to start investing in stocks.

Capital Saved Up

A very important aspect of determining when to invest in stocks is the amount of capital you have saved up. Starting to invest with $10k and no foreseeable near term expenses allows you to invest differently than someone who has only $1k and expects to withdraw some funds in the next 1-2 years.

Here are some examples of what strategies you should implement based on your starting capital level.

$1 to $1,000

If you have $1 to $1000 saved up, it may not be the right time for you to start investing in stocks. Your primary focus should be on saving money and building up your capital. It is very difficult to start investing with this amount of money and it will most likely lead to losing money, motivation and the interest to continue investing.

However, there are a few options if you still want to invest with this level of capital. There are discount brokerage firms that allow you to reduce the risk you take on when investing with this little of capital.

My favorite option for people investing with less than a $1,000 is Motif Investing. Essentially, they are a brokerage firm that allows you to purchase 10-15 stocks at one time in what they call a motif. There are no minimums and it only costs $9.95 a trade.This allows you to spread your capital across 10-15 stocks without having to purchase each one individually. If you want to find out more about Motif Investing, you can read my review here.

$1,000 to $10,000

This is a great amount of capital to start out with and you should definitely consider investing in stocks. It’s not a huge sum by any means, but it does give you the flexibility to initiate multiple positions and ‘ride the tide’  if any single stock or investment vehicle goes into the red.

If you are starting with this amount of capital, you should definitely open a brokerage firm and start building your portfolio. For most people, a mix of ETF’s and mutual funds is a great way to start out. This will limit your risk as you begin to learn more about investing and the individual strategies you want to implement.

> $10,000

In my opinion, this is a great amount of capital to begin investing with. It allows you to begin diversifying your portfolio by industry and investment vehicle (401k, IRA, regular brokerage account, etc) right off the bat.

One thing to keep in mind when starting with >$10,000  is that you should dip your toe into the water before jumping in.

I’ve seen countless of my friends think they can beat the market and get into day trading, forex, etc with a large amount of money. Rather than turning it into a million overnight, they lost a lot of money very,very quickly.

Take it slow and build your portfolio over time, even if that means not fully investing all of the money you have saved up. Better to take it slow then end up losing money.

More Considerations on When to Invest in Stocks

Beyond capital, the most important thing while determining when to invest in stocks is whether or not you feel comfortable.

Personally, I believe you should feel comfortable investing money when you have extra money to risk. These are funds beyond your near to medium term expenses (1- 2 years for most).  If you have money saved up, but expect to see huge expenses in the near future, don’t use that money for investing. You shouldn’t risk losing it since you know you’ll need it.

The same goes for debt. If you have debt, the first thing you should do is start paying it off. Don’t risk your hard earned money in stocks or real estate when you owe money. Any gains you make on your investments will automatically be reduced by your debt interest payments. Get out of debt first and then use extra cash towards investing.

Also, If you haven’t done so yet, I highly recommend opening a virtual account through OptionsHouse and tracking your profit/loss for a couple months. You can see my tutorial here.

At the end of the day, no one will know whether or not it’s the right time except for you. Read as much information as you can and go into the market with an idea of what to expect and how you plan on investing your money.  An informed investor is a wise investor.

Thanks, Sam

How much capital did you start with?


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