The stock market has been a valuable choice for investing for more than 100 years, with older versions of equity investing existing as far back as the 1600s. But today, many people falsely believe that stock investing is only for people who already have significant capital. The stereotype of a stock investor is someone in their 40s or older, with millions of dollars already in the bank.
In reality, stock investing can be valuable for almost anyone who wants to pursue it - and you can get started even if you have a limited amount of capital.
Why stocks are so valuable
First, let's explore why stocks are so valuable as an investment choice. Stocks represent shares of ownership in publicly traded corporations. In exchange for the current trading price, you can literally own a fraction of the company in question.
Good companies that perform well tend to increase in price over time. As we gain access to new technology and higher levels of productivity, the stock market tends to rise in price overall, ultimately helping investors grow their wealth at levels far outpacing inflation. On top of that, many companies distribute their profits to shareholders in the form of dividends; you might be able to collect a small percentage of your investment every year as a direct profit.
Stocks are somewhat volatile, fluctuating up and down in price, but over the long term, they're incredibly reliable. If you make wise investment choices and hold your stocks for decades, and if you're invested in a number of different companies and industries, you should reliably see a significant increase in equity.
Barriers to entry
The question is, how do you enter this market? There are two main barriers to entry: money to buy stocks and knowledge on how to invest wisely.
When it comes to money, there are three factors to consider:
- Minimum account requirements. Some financial institutions mandate you to have a minimum account value before opening an account to trade stocks. However, some apps allow you to trade with no minimum balance whatsoever, and some minimums are easier thresholds to meet (like a $500 minimum balance).
- Trading fees. Historically, investors would need to pay a small commission fee every time they issued a trade; they might pay $8 every time they bought or sold an asset. However, in the modern era, free commissions are more common. In other words, you could pay nothing in trading fees.
- Individual stock prices. The only variable that remains is the price of individual stocks. Depending on the company, a share could be less than $1 or it could be several thousand dollars. Most are a few dozen to a few hundred dollars per share.
Accordingly, this barrier to entry has become relatively low. You can begin investing with as little as $10 under the right conditions, though you should try to collect at least a few hundred so you have more options, in my opinion. For many investors, $500 is a good starting point.
The other barrier to entry is knowledge. How does the stock market work? What makes a good investment? Should you diversify or put all your eggs in a few well-researched baskets? The only way to get over this barrier is to study and increase your knowledge and experience.
How to save money for investing
So how can you save that $500 or so to start investing in stocks? Here are some tips on savind and budgeting:
- Use a money saving/budgeting app. First, make sure you're using a money savings app to keep track of your income and expenses. You should be tracking how much money you make and how much you spend in different categories. This will make it far easier to measure your savings and find new areas for saving in the future.
- Downsize your lifestyle. Consider downsizing your lifestyle, even if it's only slightly. Taking public transportation instead of driving a car, or moving to a slightly cheaper part of the city, could help you save hundreds of dollars per month.
- Trim your unnecessary expenses. Pay attention to all your unnecessary expenses, like subscription entertainment services or going out to eat. Chances are, there are many items you can sacrifice here, ultimately adding up to a hundred dollars a month or more.
- Make extra income. If you're finding it hard to make additional cuts or you're struggling to make ends meet, consider finding a way to make some extra income. You may be able to pick up a part-time job, or begin a side gig for some extra money.
- Consistently set money aside. Finally, put a plan together to put a bit of money aside every month. Investing is a long-term strategy, so you should be prepared to fund your account consistently.
Buying your first stocks
Once you've opened an account with your initial savings, you'll be ready to start buying your first stocks. There's a lot of information to learn about technical analysis, how to read quarterly earnings reports and how to balance a portfolio, but if you're just starting out, you may consider simply buying stock in companies you personally have in-depth knowledge on so that you can gain an edge. You can always refine your strategy and expand your circle of competence in the future.
Disclosure: I do not own any of the stocks mentioned in this article.
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