A recent survey found that most Americans believe you need to earn at least $60K annually to have enough disposable income to begin investing, but that is not true. Here’s what you need to know.
A recent poll has revealed that over half of Americans hold the unrealistic belief that unless you earn a salary of $60,000 annually, you won’t have enough disposable income to start investing, according to a survey taken from a recent One Poll study conducted on behalf of Talker.
The poll results also corroborated the reality that this myth has imposed on investors. According to The Street, approximately 57% of people earning less than $60,000 per year have never invested.
So if the belief that you need to earn $60K per year to begin investing is a myth, then the question becomes: How much do you need to make?
“You can begin investing in stocks with as little as $500 to $1000 and add to it as you earn and save more money,” says Investors Business Daily founder William O’Neil. This is especially true with many brokers now offering zero-commission trades. This makes it easy to create multiple buys and sells within a single stock.
Others say even though you could potentially start with as little as $200 and technically begin with $1 as most brokerages now have no minimums to open an account, it’s better to start a little higher. To really get started right, most experts agree it’s best to begin with a minimum of $1000.
At only 21 years of age, O’Neil began his investment career by purchasing five shares of Procter & Gamble (PG). He says that you might have been forced to concentrate on one or two potential winners in the past if you only had $500-$1000. Or you could go up to four if you had $10,000. This was mainly due to the hefty commission fees charged by brokers. But now, with online brokerage accounts offering commission-free trades, you are no longer under that limit. Still, he recommends it is better to concentrate on no more than 8-10 stocks.
According to Todd Lincoln, MBA, writing for medium, with $1000, you could…
· Afford a single share of stock.
· Properly diversify your portfolio.
· Protect your profits from trading fees.
Even though you may start small with $1000, your goal should be to continue to invest more of your savings once you get rolling.
According to experts, the sweet spot you should aim for is to put 15% of your pre-tax income into your investment, CNBC reports.
This guideline refers to utilizing 50% of your take-home pay for your essential expenses such as (housing, food, health care, transportation, child care, debt repayment).
Use 15% of your pretax income (including employer contributions) to allocate toward investments for your retirement and net worth growth.
Then, 5% goes into short-term savings, such as an emergency fund.
This leaves you with 30% of your income that can be allocated to various things such as dining out or entertainment or tucked away in savings.