How Much Should I invest?

Can I Afford to Trade?

The amount of money that you invest will inevitably have a rather large impact for your future, hopefully, with the guidance of this brief article, you will be able to make the right decisions that will most benefit you, the next time you invest.

How Much?

The amount you invest depends on two things. The time you have to devote to managing your investments and the amount of spare money you have to invest money that you won’t need to pay bills.

A few things to reflect on: One of the first questions to ask yourself, is what would you prefer? A financial advisor, someone who can give you investment tips or share market tips?

If you don’t have enough time to manage your own investments you would be better off using an investment advisor to help you decide where to invest your money.

Once you have decided on whether you want to manage your investments, the following step is to decide how much money you plan on investing. The best way is to start off slowly. There are two approaches you can take: One is to invest the same amount of money every month, even if it is less than $100 for investment, you are still able to start and build up your portfolio by investing in a mutual fund or in an index fund.

The nice thing about compound interest is that $100 a month compounded, adds up to a lot of money after a few years. On the other hand, if you have a lump sum to invest, say $10,000, a different strategy can be employed.

Rules of Thumb

A general rule of thumb of investment of cash management or money management is not to invest more than 5% of your capital on trade or investment. Five percent of $10,000 is $500, which will give you several options for investing. You could invest in individual stocks, a stock index using ‘Exchange Traded Funds’ or a mutual fund. Another option is to invest one-twelfth of your capital of $10,000 every month for a year. Even if you are able to add more capital each year simply invest either 5% of the new capital amount per trade or invest one-twelfth of your new amount of capital each month.

As your capital increases and your investments become numerous, start to think about how your portfolio should be constructed.

Diversify

As a small reminder, it would be best for you to invest in several mutual funds over diversified sectors of the market or you could build up a portfolio of a mix of individual stocks and stock indexes. By investing in different industrial sectors, different parts of the world, large cap companies and small cap companies; you will reduce the chance that problems in one sector will drag all your investments down.