How much money to save in order to start trading stocks?

Question

I'm 19 years old and I want to start trading stocks online. I was wondering how much money I should save to start trading and also which online company would be the best for me to use. Any useful tips are also appreciated ( ;

Answer 1

Very few people end up making money when they try to time the market.

Warren Buffett once said that before you buy a stock you should be able to write a book about the company. I think that you are not interested in doing that but you are thinking you can maybe make some fast, easy money. It doesn't work that way.

Learn about EMT and index funds and how to properly invest:

1. Do not chase past returns. People that buy funds because they have done well in the past are doing exactly that.

2. Do not market time. Market timing is buying based on your (or your newsletter, or your TV, or neighbor's) guess about what is going to happen in the future. Even if someone knows something, you've already missed the boat. The price already reflects what you just found out.

3. Use index funds. Over time, index funds outperform actively managed funds, mostly because they do not have those high expense ratios. Some actively managed funds do beat their index, but the ones that do usually do not do so consistently. So why gamble? Use index funds. If you want to use a few actively managed funds, make sure that the costs are very low. Vanguard has some good ones.

5. Diversify. Don't put all your eggs in one basket. Own a mix of bonds, domestic equities (large, small and mid cap funds), an international fund and perhaps a REIT (Real Estate Investment Trust) and emerging market fund.  Four to six funds is all you need. Know your risk tolerance and set up an appropriate asset allocation. Rebalance as needed.  

6. Consider taxes. Use the least tax efficient funds in your tax-deferred accounts and the most tax efficient funds in your taxable accounts.

Answer 2

Start right away with whatever amount you have, but at this point since you don't have much experience, only invest money you can afford to lose.

Answer 3

As for where to go, I personally like Scottrade.  They are inexpensive, and have always been very good to me.

As for how much to save, here are some things to help you decide:

Think about transaction costs.  Even if you can put in a trade for $7, that ends up costing you $14 for a buy and a sell later.  If you only have $100 in your account, and you buy one stock, and sell it after a 10% gain, you will still end up with only $96 (a loss of 4%) when all is said and done, due to the trading fees.  But if you buy $10,000 of that stock, get a 10% gain, and then sell it, you end up with $10,986 (a gain of 9.86%).

Think about diversification.  If you only own one stock, you have a lot of exposure to risk, and are in a lot more danger all the time.  If you want to diversify to say 10 stocks, that's great, but each one will have its transaction costs, as outlined above.  So the more stocks you own, with a decent position in each one, the more money it takes.

Answer 4

It's never too early to start investing.  Notice i said "investing" and not "trading" - there's a difference.

If you want to be a trader, you should probably have a bankroll of about $50k minimum that you can afford to lose.  Trading is for pros and fools.  If you were wondering, I would guess that you're not a pro.

However, if you want to invest (take a long-term approach, rather than a short-term approach), a couple hundred dollars is fine.  If you invested in small and micro-cap companies, you could expect to earn around 15% per year (the returns are higher as you invest in smaller and smaller companies - if you do it through mutual funds or EFTs), in the long run.

So if you invested $1,000 at age 19, and earned that 15% return, you would have $1,246,206 at age 70.  However, if you tried to be a trader, you would probably lose all of your money by age 21.  If you invested $1,000 per year over that same time frame, you would have $8,301,374.  So please, do yourself a favor, and invest whatever cash you have on hand that you don't really need access to anytime soon.  Keep investing for your entire life.  And never try to be a trader.

Answer 5

I would have answered here, but I would only be rewriting what the two guys above me said.

However, I would add that even the pros are finding it tough to navigate the current market... So I would use this time to educate yourself on the market sector your interested in, and wait to the economy stabilizes a bit.