Investing in shares can be one of the most effective ways to help you create long-term wealth. In fact, in a report published in June 2018, it showed over the 20 years leading up to December 2017, Australian shares returned a solid 8.8% and global shares (hedged) returned 7.4%.1
So, the question remains… how much do you need to start investing in shares?
Unfortunately, there isn’t a simple answer to this as it really depends on a number of factors. This includes things like how much you can afford to invest, how long you intend to invest for, your goals and your risk tolerance. You also need to consider how you’re looking to invest your money.
In this article, we’ll address these factors in more detail as they will be the best guide in helping you determine how much you need to start investing in shares.
Learn more about investing your wealth or speak to a financial adviser.
Consider why you want to invest in shares
If you are considering how much you need to start investing in shares, the question you really want to be asking yourself is what you expect to gain from your investment over the long and short term.
Once you’ve identified what your objectives are, you’ll then be able to develop an effective strategy, including how much you need to invest initially to get you there.
Build your experience and knowledge first
Like with anything you’re not familiar with, it takes time to learn and understand how the share market works and which strategies work best for you.
This means you’ll need to consider having a baseline investment amount that will enable you the flexibility to make mistakes and learn from them.
Once you’ve built your experience and confidence, you may then feel more comfortable investing greater amounts to truly help build your wealth.
Consider adding to your portfolio regularly
If you’re trying to figure out how much you need to start investing in shares, consider not only your initial upfront investment but how much you’re willing to contribute to your investment portfolio on a regular basis, if you choose to.
The main benefit of consistently adding to your portfolio is it may help to smooth out the rises and lows caused by market volatility. It may also help you achieve your goals faster.
If you decide to take this approach, creating a detailed budget or doing a rough calculation of your typical expenses, will provide an indication of how much you have leftover to invest so you can manage it effectively.
Once you’ve worked out your investment goals and how much you can contribute each month, this will set you in a good position to start investing.
Consider how you want to invest
If you’re considering investing in shares but don’t feel comfortable managing it yourself, you can gain access to the share market indirectly through a managed investment fund such as a mutual fund or Exchange Traded Fund (ETF). In this case, managed funds normally require you to have at least $1000 – $50002 invested initially. These funds also charge fees for managing your money so this will add to your total investment amount.
Consider getting professional financial advice
If you’re unsure about where to start and how much you’ll need, a financial adviser can help you formulate a plan. This may include strategies to help you generate a higher return on your investment income.
Bottom line: How much you need to start investing in shares depends on a number of variables which only you can answer. Thinking about what you aim to achieve from your investment, is the backbone of any successful investment strategy.