How Much Capital Should You Invest?
by: Brian Lee
I get a lot of questions from first time investors regarding the topic of how much they should start investing with.
Many investors think when they first start out that they should invest all of their savings. This isn’t only unnecessarily true but could also be very dangerous, if you don’t have a trading system or the disciple to follow it. As you could easily wipe out your whole account if you don’t have a trading system in place.
To determine how much capital you should invest, you must first determine what your financial goals are and how much you actually can afford to invest.
First, let’s address the issue of how much capital you can currently afford to invest. Do you have any savings that you can use? If you do, that’s great! However, remember that you want to be able to live comfortably so don’t cut yourself short when you tie your capital up in an investment. What were your savings originally going to be used for?
It is always important to keep a reserve of three to six months living expenses in a readily accessible savings account – DO NOT invest that money! Don’t invest any money that you may need in a hurry in the near future.
Begin by determining how much of your savings should be used for investment purposes and how much should stay in your savings account. Unless you have funds from other sources, such as an inheritance that you’ve recently received or you got really luck and won the lottery, this will probably be all the capital that you currently have to invest.
Next, determine how much you can comfortably add to your investments in the future. If you are holding a job, you will continue to receive a monthly salary, and you can plan to use a percentage of that income to build your investment portfolio over time. Another thing you can do is speak with a qualified financial planner to set up a budget plan to determine how much of your future income you will be able to invest.
With the help of a good financial planner, you can be sure that you are not investing more than you comfortably should – or less than you should in order to reach your investment goals.
For many types of investments, a certain initial capital investment amount will be required. Hopefully, you’ve done your research, and you have found an investment that will prove to be sound. If this is the case, you probably should already know what the required initial investment amount is.
If the money that you have available for investments does not meet the required initial investment, you may have to look at other investments. Always remember to never borrow money to invest, and that you should never use money that you have not set aside for investing!
About The Author:
Brian Lee
http://www.elitemarketeer.com
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August 2006
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