Are you thinking about dipping a toe into the world of investing but unsure where to start? Perhaps you already have a small number of shares but are keen to expand to a real investment portfolio? Whatever your current situation, one of the most frequent questions asked by newcomers to investing is, “how much do I need to get started?”
Technological improvements have made it easier to start investing, with online platforms making the processes faster and cheaper than ever before. However, although the cost and ease of entry have never been lower, many people are still confused about how much of their hard-earned cash to use.
What is the difference between saving and investing?
Investing always starts with the purchase of an asset, with the hope that it will increase in value over time. This means that there is far greater potential to grow your wealth than if you save money in a bank account, but it also carries a risk that the asset you invest in will go down.
All investing carries a certain degree of risk, which means you have to be comfortable with the idea that you may not recoup all your funds. The amount you should invest in an asset is, therefore, usually driven by your appetite for risk — which can only be decided by you alone.
Do you need a lot of money to start investing?
Newcomers to investing often believe that you can only make decent returns by spending large sums of money on assets. This isn’t true at all, and plenty of people get started with only a small principle sum and affordable monthly top-ups over time.
Starting with small regular amounts
Investing a small amount each month is a highly affordable way to get started and can yield impressive results over time. If you choose your asset classes wisely, it’s absolutely possible to build your portfolio into big figures without needing to risk large amounts of cash in a single hit.
Starting with a small lump sum
If you have built up some cash in a standard bank account and would like to get a better return on your savings, it’s also possible to invest a lump sum up-front. Lump-sum investments can be topped up with small regular deposits, accelerating your returns over time. It’s worth mentioning though, that investing a lump sum with bad timing could lead to instant losses if the markets take a dive when you buy your initial assets.
So how much money do you need to get started?
Whilst many people think you need thousands to begin investing, the reality is that you can get started with as little as €50. A 5% annual rate of return (over inflation) is a very rough average of the amount you’ll make from shares over the long term, but it’s not uncommon to push that figure to 14% with some savvy choices. Even if you only add small amounts to your portfolio each month, you could build a significant lump sum over time.
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