How to Know How Much Money to Invest in the Stock Market

As I stated in the introduction, it is never too early to start investing. But if you start out small, you need to choose wisely where you put your money. Also, chances are that if you are starting out small, then you probably don't have a lot of time to dedicate to following the stocks you might want to invest in. This is another important point that should be taken into consideration.

First off you need to decide how much time you'll have to dedicate to researching your investments. If you think you will have a couple hours each week to follow your investments, then I would recommend investing in stocks. But as you get older, you should decrease your exposure to stocks. Anyone under 30 years of age can afford to have 100% of their investments in stocks. After that, you should decrease it as your age increases. The general consensus is that for every five years you age (after 30), decrease your exposure to stocks by 10%, and put that money into a safer investment like bonds or CDs. Example: Age 45 = 70% stocks, 30% fixed income (safer investments).

Now, if you will not have a couple hours each week to research and follow your stocks, then I would recommend investing in a mutual fund. This way you will able to be diversified and achieve a decent rate of return on your investment.

Lastly, you must decide exactly how much money you want to use to invest. Basically, anything is good. If you are investing in stocks on your own, I would say that $2,500 is a good start. That way you could have $500 in five different stocks and be diversified. But even $500 to begin with is okay. However, if you are investing in a mutual fund, you have more flexibility. There are mutual funds that allow you to put in as little as $50 at any time without charging a fee. Usually you have to deposit an initial payment of somewhere between one and five thousand dollars. The nice thing about investing in a mutual fund is that after you choose the one you want, it takes no further effort. All you have to do is just continue to put money in the fund, which can be the most difficult part.

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