I probably get this question the most often. The truth is that there is no cookie-cutter answer to this question. In most cases, the best answer to determine “How much money you should invest?” is to use everyone’s Risk Appetite (Tolerance, Capital, and Aversion). The reality is that today you can begin investing with as little as $5 dollars, but is it worth it?
Well, this depends a lot on your Risk Appetite. Risk Appetite is your Risk Tolerance (how much volatility you can stand) Risk Capital (how much money you can afford to invest), and Risk Aversion (how much you can stand to lose). This is usually determined by taking a test that asks several questions about your personal approach to money management.
Once you understand your Risk Appetite it is important for you to make sure you are in the financial position to invest in the stock market. Investing is a privilege and not a right.
With apps like Stash, Stockpile, and Acorn you can buy a fraction of a share (a percentage of the stock) instead of buying the entire share. For example, Amazon is trading around $2,000.00 but you can purchase a percentage of the stock on Stockpile and receive your returns or losses base on your investment amount. Although, investing in Amazon may sound like a good idea but in you, in 5 dollars in a company that appreciates about 65% in 1 year you will earn about $3.50. Now ask yourself is it worth it to invest?
Your return on investment will be determined by the amount you invest times your rate of return minus your expenses. So, the more you invest the bigger your possible return. Investing a small sum of money into the stock market is a great way to get started. Investing a small amount of money can help you take the fear out of taking the “Big Plunge”.