Business Magazine

How Much Should You Invest in Each Stock Or Fund?

Posted on the 01 September 2016 by Smallivy

jehericobridgecross

Dear SmallIvy,

Hi,

I was curious what your opinion is on the minimum amounts to invest in stocks or funds? I’m currently 30 years old and threw some money into my IRA about 2 years ago and kind of spread things out into small amounts. I don’t know if there is such a thing as “too small to matter” and if I should sell those to combine a bigger sum and place into a fund? For example, I have $300 in Apple, $200 in Air Lease Corp, $500 in FSPHX etc. Should I dump those and lump the remaining (some gained, some lost) into a reputable mutual fund? What would be your opinion on ETFs? Warm Regards, Jacqueline Dear Jacqueline, Generally, when I’m investing I like to invest $2,000-$3000 at a time if I’m buying individual stocks or ETFs.  For example, I’ve been buying individual stocks and ETFs for my childrens’ educational IRAs, which have a $2,000 limit per year, so I just pick one stock or ETF to buy each year with the full $2,000.  The next year I buy a different stock or ETF or add to a position I have.  I also try to find investments that I plan to keep for 5-10 years or more so that I don’t lose money to fees by selling and buying again. The issue with buying small amounts, because there are usually minimum brokerage fees charged, is that the brokerage fees become a large percentage of the amount you invest.  For example, if the minimum fee is $25 and you buy $100 worth of stock, you’ve paid a 25% brokerage fee.  If you buy $1000 worth of stock and still pay a $25 brokerage fee, you’ve only paid 2.5%.   Now that you have invested, however, to move it would create more cost, so you should probably stay where you are unless you decide you really don’t like one of these companies for a good reason.  Instead, I would start building up cash a little each month and trying to put a couple of thousand per year (or more) into your IRA.  You can then start to buy funds/ETFs.  Note also that if you buy into an open-ended mutual fund, you may be able to add more money without paying additional fees.  Many dividend-paying stocks with dividend reinvestment plans also offer this option. It is great that you’ve started an IRA – that’s an important first step that unfortunately many people don’t take until they’re in their forties or later.  That puts you ahead of the game already.  The next step is to ramp it up a bit and make retirement savings one of your regular monthly activities.  Start putting away whatever you can.  Try to build this up, perhaps increasing the amount you contribute as you get raises, until you’re putting 10-15% of your paycheck away for retirement, which is enough to make sure you have a comfortable retirement.  If you have a 401k available, invest enough there to get the company match, the switch to the IRA up to the max, then go back to the 401k if you still have not reached the 10-15% goal.  If you don’t have a 401k, fund your IRA to the max and then start investing in a taxable account long term in stocks or growth mutual funds or ETFs such as S&P500 funds or ETFs since they have little turn-over so most of your money will compound anyway. There is also such a thing as being too concentrated.  Remember to spread things out.  I’d never have more in an individual stock than I’d be willing to lose.  I might start out with a portfolio consisting of just $2,000 in company XYZ, but I wouldn’t have a $20,000 portfolio invested in just XYZ.  I would probably have $3,000 in three companies and then $11,000 in a couple of ETFs or mutual funds.  Even with mutual funds and ETFs, I’d buy a couple of different kinds of funds – large caps and small caps, for example, and maybe mix some REIT funds and income funds into the mix as my portfolio grew in size.  Hope this helps! SI

 Got an investing question? Please leave it in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


Back to Featured Articles on Logo Paperblog