How Much Is Needed to Start Investing?
What is the minimum dollar amount needed to start investing? It is a question some members ask us and likely one that many others have, especially those who are new to investing.
Technically, you are only limited by the minimum amount required by a brokerage firm or mutual fund company to open an account. ShareBuilder, an online broker, has no required minimum account balance. More than 50 mutual funds included in our annual mutual fund guide have minimum purchase requirements of $100 or less, including funds offered by Fidelity, AssetMark, USAA and Oakmark.
In this article
- Stocks and Brokerage Commissions
- Mutual Fund Advantages
- ETFs Are Even Cheaper
- Other Articles in the Beginning Investor Series:
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Pragmatically, you should weigh the dollar amount you have available to invest against the actual costs of creating a diversified portfolio. Brokerage commissions for buying and selling stocks and exchange-traded fundsincrease significantly on a percentage basis as the dollar amount invested decreases. Mutual funds, conversely, charge a flat percentage fee. Commission-free ETFs, which are offered by some brokerage firms (including Charles Schwab, Fidelity and TD Ameritrade) are even more advantageous from a cost standpoint.
Stocks and Brokerage Commissions
Most online brokerage firms charge between $7 and $10 per trade. Though this does not sound like much, commissions can have a big impact on small accounts. For example, say you have $1,000 to invest in a single stock. Your buy and sell orders will each cost you $10, resulting in a transaction cost of $20. This equates to a 2% reduction in your actual returns. Once you start factoring in the costs, your profit may very well not justify the risk of trying to pick an individual stock, if you are investing a small amount in a taxable account.
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