How much should you invest when you start investing?

Karl 5th Jan 2023 No Comments

Reading Time: 4 minutes

How much should you invest if you’re a beginner investor? The answer to this question isn’t quite as straightforward as you might think. Your financial health, age, and personal appetite for risk are just some of the factors you’ll probably need to take into account.

In this article we’re going to explore each of these variables and outline why they’re important. Keep on reading for all of the details, or click on a link to head straight to a section…

How much should you invest when you start investing?
What factors should newbie investors consider?
Which platforms are suitable for beginner investors?

How much should you invest when you start?

If you’re a beginner investor, it’s can be easy to become overwhelmed by newbie investing tips: “Invest at least £200 per month to earn a decent passive income,” “Buy low, sell high,” “Invest in an index tracker fund and forget about trading”.

These one-liners are commonplace in investing circles. While they aren’t necessarily unhelpful, they’re generic to say the least.

The fact is, when it comes to investing your personal circumstances should be at the forefront of your mind. There’s rarely a ‘one-size-fits-all’ approach, and this applies to the question of how many stocks, shares, or bonds you should buy to begin your investing journey.

What factors should newbie investors consider?

If you’re keen to understand how much you should invest if you’re new to the stock market, here are three big factors you should take into account.

1. Your current finances

It almost goes without saying but if you’re in debt, or you don’t have a lot of savings, improving your financial health should be your number one priority. In other words, if you’re personal finances are shaky, you should forget about investing for now. Instead concentrate on clearing any outstanding debts, or building a half-decent savings pot.

While the horrors of inflation can erode the value of savings, it’s still worth having an emergency fund worth about 3-6 months of your everyday expenses. If you follow this rule you’ll be in a strong position should you come across an unforeseen event or two, which could negatively impact your finances. For example, a sudden loss of income.

Of course, once you’ve built up a decent savings pot, you’ll be ready to start investing. The more savings you have, the more you can invest.

2. Your age

If you’re young you should (hopefully) have a long time to see your investments grow over time – it’s the wonders of compound interest!

That is why, as a rule of thumb, younger investors might get away with investing just a small sum to start with.

If you’re an older investor, however, then time obviously won’t be on your side as much. Because of this you may wish to start your investing journey with a larger amount.

3. Investing goals (& risk appetite)

People invest for different reasons. For some, investing is their route to financial freedom. For others, preserving wealth might be the aim. Some investors may even see investing as a way to earn a quick buck by day trading.

The fact is, we all invest for different reasons. This is why in order to determine how much you start investing with, it’s worth understanding your own investing style.

This is also where your personal risk tolerance comes into play. For example, if you’re willing to take on a hefty level of risk in order to chase higher returns, then you may be tempted to start investing with a high amount.

In contrast, if you’re risk-averse you may prefer to keep a higher percentage of your wealth in cash or other assets. Investors with this mindset may wish to stick with a small sum, at least to begin with.

What platforms are suitable for beginner investors?

There are host of investment platforms out there, but how do you find one that’s suitable for beginners?

Well, unless you plan to invest a huge amount to start with, you’ll probably want to find a platform that has the following characteristics.

A low minimum purchase amount. Some investing platforms will require you to purchase a minimum number of shares in order to start investing. This could be problematic if you hoped to start off small. Because of this, newbie investors may wish to go platforms that have a low minimum purchase requirement, or one that supports the ability to buy fractional shares.
Zero share dealing fees. If you’re planning to invest for the first time it’s often wise to avoid platforms with high share dealing fees. That’s because these fees – often a fixed amount – are likely to account for a hefty portion of your total wealth in investments if you don’t buy lots of shares. Thankfully there are now a number of providers that allow you to buy shares with 0% commission.

While you should always do your own research before deciding on an investment platform, eToro, Freetrade, and Trading 212 are three 0% commission platforms that allow investors to trade with small sums.

To learn more about finding the right platform for you, do take a look at our article that explains how to invest when you don’t know anything. If you want to learn more about buying shares without paying share dealing fees, then also take a look at our article that explains how to buy shares with 0% commission.

Remember… you can increase your investments in future

If you’re new to investing, there’s nothing wrong with starting small to test the waters. If your personal finances improve in the future, your investing goals change, or you simply become a more confident investor, you can simply up the amount you put into the stock market.

Always keep in mind that the amount you start investing with isn’t anywhere near as important as investing consistently, and learning good habits. If you’re a newbie investor and keen to learn more about investing do sign up for our fortnightly MoneyMagpie Investing Newsletter to keep yourself in the loop.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.