“How much money do I need before I can start investing in stocks?”
It is a simple question with a simple and quite logical answer, but it pops up again and again.
When the question comes up so often, there is a reason for it. It’s a mental barrier – not really a question.
If I give a rational answer to a psychological barrier, I’m failing you.
Because it’s really all about a myth and blockage: the idea that you need to be rich to get rich.
It’s a barrier that is preventing a lot of people from taking action.
And that’s the worst thing that can happen. If you don’t take action, you’ve lost before you even begin.
So let’s bust the myth that you need a lot of money to begin investing in stocks.
I’ll answer the question on a rational level first. Let’s look at the facts.
How Much Does a Share Cost?
You don’t need much. You can just buy a single stock – or even a fraction of a share.
A quick way to figure out how much a share in a specific company costs is by googling the name of the company plus the word “stock.”
You’ll see how much you need right there.
First of all, yes, it’s true that there are a few companies whose stocks are expensive.
Let’s start with one of my favorites:
Class A shares in Warren Buffett’s company Berkshire Hathaway are above 479,000 USD per share at the time of writing. But that’s no excuse either, because Warren Buffett created another class of shares for normal people like you and me. Class B shares in Berkshire Hathaway are just 319 USD at the time of writing. That’s manageable for most people, wouldn’t you say so?
Yes, there are other shares that cost more than most people’s rent.
Amazon is worth more than 3,000 USD, and Google is close to that level.
But these companies are the exceptions to the rule.
Most companies make stock splits if the stocks get too high because they actually want the retail investors to invest in them.
A stock split means that one share becomes several (typically four or five), and the price adjusts accordingly.
If shares in a company cost 1,000 USD before a split, and they convert each share into four shares, the stock price follows and becomes ¼ of the previous price. In this case, 250 USD after the split.
Apple made a stock split a few years back, and now the stock costs 164 USD.
What about cost of investing, then? Does it make sense to buy one share? Isn’t the fee going to be too high for that kind of trade?
How much does it cost in fees to buy the stock?
Not a lot. Typically around 1-3 USD per trade. So that’s not an excuse either.
In other words, you can easily begin investing for less than 200 USD per month.
What About ETFs?
It’s the same.
You can just buy one share at the time. Most ETFs trade well below 500 USD.
When looking at funds, the most important thing is to choose one with a passive management style – in other words, a so-called index fund. It’s also important to make sure that the expense ratio is low, preferably below 0.10.
You can look ETFs up on one of the databases like Morningstar.com.
It’s best to have an idea of which index you want it to match before you look it up because there are a lot of ETFs out there. Choose the index and then go with one of the big and trusted fund managers, such as iShares or Vanguard.
Don’t make it too complicated.
Fractional Shares Break Another Barrier
If you really want to invest in Google or Amazon but have less than what one share costs, it’s still possible with fractional shares.
You can invest as little as 5 dollars at a time.
Some of the bigger US platforms have begun offering fractions of shares.
It’s possible with Charles Schwab or Robinhood, among others.
A Lower Price Doesn’t Mean It’s Cheap
Maybe you think that a share for 122 USD is cheaper than a share in another company trading above 3,000 USD.
Slow down, buddy.
You need to think of the company as pizza, divided into different pieces for the owners.
They can be so many sizes and so many different cuts.
One pizza can be divided into two pieces, each costing 50 USD, while the other pizza is divided into ten pieces, each costing 10 USD – and both examples add up to 100 USD per pizza. One pizza may be the size of a teacup, while the other may be as big as NASA’s runway.
We can never judge a stock by the mere price alone. You have to look at the values inside the company to judge it.
We need to assess what kind of company we are dealing with and find out how many pieces it’s divided into.
Fortunately, you can learn a lot more about this in my e-book here.
Get Rid of the Tripwire
I’ve given a rational answer. At a rational level, there is no excuse.
Now let’s look at the psychological barrier.
The reason so many people ask this question is because they think you have to have a lot of money to be able to invest in the stock market.
It’s one of these things they’ve heard.
Your grandmother might have said something like that.
Just like your elementary school teacher always mumbled that stock market investing was very “risky” because that’s what she heard from her grandpa who lost money in 1929.
None of them had stock market experience when offering you unsolicited advice, so they were gifting you their own barriers, like hot turds in wrapping paper.
Do you want to inherit other people’s limiting beliefs? Or figure out what works?
The main point here is that there’s no excuse not to get started. In fact, it’s important to get started as early as possible, as there are two compounding forces at work.
First of all, your money compounds, meaning it will grow exponentially over time when the money you make is reinvested and begins making money too.
The second force is your experience and knowledge. When you begin to research funds and companies, your ability to make good decisions will compound too.
When you get real experience with the stock market, you’ll find that the mental stumbling blocks disappear because you now KNOW that you can easily invest without having a fortune.
You now KNOW that it’s not so risky, if you know what you’re doing and follow a method.
It’s important – even with just a little money – to get the experience that’s worth a lot in the long run.