People invest in stocks to make money, save for retirement or simply beat the return on a CD at the bank. Buy and hold investors know that starting early and routinely investing a set amount is a good way to take advantage of market growth over time. How much do you need to start stock investing? In theory you only need to buy one share of one inexpensive stock which could cost only a few dollars plus commission. As a practical matter it is better to start with a few hundred or a thousand dollars because that is typically the minimum deposit requirement a brokerage firm will ask for to service your account. NASDAQ discusses how to start investing with only $1,000.
Stock brokers come in two flavors: full-service and discount. As the name implies, a full-service broker provides much more in the way of service, but it only deals with higher net worth clients. It’s not unusual to see minimum account sizes of $50,000 and up at full-service brokerages.
This leaves the $1,000-investor with the option of a discount broker. Discount brokers have considerably lower fees, but don’t expect much in the way of hand-holding. Fees are low because you are in charge of all investment decisions – you can’t call up and ask for investment advice. With $1,000, you are right on the cusp in terms of the minimum deposit. There will be some discount brokers that will take you and others that won’t. You’ll have to shop around.
You also could purchase shares directly from a company through direct stock purchase plans (DSPPs). But some of these plans have a minimum investment amount restriction, which ranges between $100 and $500.
And make sure your personal finances are stable before you start investing in stocks. In our article, How to Start Investing in the Stock Market, we talked about this.
A good rule of thumb is that you should not invest what you cannot afford to lose. Thus you need to be able to pay your mortgage or your rent and make payments on your car and other expenses. Then you should have a couple of months of expenses in the bank and your credit cards paid off.
What you do not want to be confronted with is selling your stocks at a discount because just when the market momentarily corrected you need to make a car payment or catch up on other bills.
Penny Stocks versus Blue Chips
The gold standard for long term investors is a dividend paying blue chip stock. Unfortunately stocks like Boeing, Coca Cola or Disney currently sell for $129.01, $42.38 or $92.87 respectively. The cost per share of a blue chip stock reduces the number of stocks in which you can invest with $1,000 or less. If you want to diversify your portfolio you will need to look to lower priced stocks although investing in penny stocks can be tricky. The safer bet when you start investing with a small amount of capital is to pick the best stock even if you only purchase a share or two and then add to your holdings on a routine basis as time and finances allow.