While investing in the stock market can be risky, many people are aware of friends, co-workers and family members who have made a modest or even a huge fortune through stock investments. After you fund a savings account and maximize contributions to a retirement account, it makes sense to look at the stock market as an additional investment opportunity. However, you may be wondering if you have enough cash available to begin investing in stocks right now.
Opening a Brokerage Account Online
Most investors today make stock purchases through an online investment account. There are numerous online brokerage firms that you can research and consider, and each has a minimum initial account balance requirement. While some have an initial opening balance of less than $500, it is more common to see this requirement ranging between $500 and $1,000. As you can see, many people have enough money to get started with stock investments by opening a brokerage account today.
Choosing Affordable Stocks
Opening an online brokerage account is only the first step to take when you want to invest in individual stocks. Stock prices range from a few dollars or less per share to more than $1,000 per share. In most cases, you must purchase a full share of a stock to complete a transaction, and you must have the cash available in your brokerage account to make the purchase. You can see that your opening account balance will initially limit your purchase options as well as the number of shares that you can purchase of the desired stock.
Focusing on Transaction Fees
Another important factor that is often overlooked initially by new stock investors is the transaction fee. This may range from under $5 per transaction to more than $10 per transaction. While it may seem relatively unimportant at first glance, it directly affects your return on investment. Consider if you purchased one stock share for $50 with a $10 transaction fee. You will pay a $10 fee when you purchase the stock and another $10 fee when you sell that single share. Therefore, to turn a profit, you would need to wait until that stock price reached $70 or more per share. However, if you purchase 10 shares of that same stock at one time, you would still only pay that one transaction fee. You can see that you may be able to enjoy a greater return on investment if you strategically make purchases that minimize the impact of transaction fees. You can also increase your return on investment by choosing a brokerage that has lower transaction fees.
New investors do not usually need to make a huge initial investment to start a stock account if they choose the right brokerage firm to work with. However, to reduce the chance of financial loss and to potentially maximize a return on investment, investors need to focus on the impact that transaction fees have on their investment and pay attention to how individual stock prices align with transaction fees. By reviewing all of these factors carefully, you can make thoughtful, informed stock purchases even with minimal cash investments.