How Much Should I Invest in Stocks?

Investing in the stock market is a great way to grow your wealth as well as set a financial plan in place for the future. But in a tight economy where prices of necessary goods are rising, many investors are asking the same question, “How much should I invest in stocks?” Generally, experts recommend investing 15% of your after-tax income. However, everyone’s financial situation is different, and it’s best to use that number as a guide or goal rather than a hard-and-fast rule. Keep reading to see what factors you need to consider to determine how much should I invest in stocks per month.

How Much Money Do I Need to Start Investing in Stocks?

Beginners may believe they need to have a sizable sum to start investing. However, many online brokerage platforms now have $0 account minimums, such as E*TRADE and Robinhood. You can start investing with only a few dollars to spare. 

To decide on your initial investment amount, you’ll want to do research into the stocks you’d like to include in your portfolio. Some stocks cost a few dollars, while others cost hundreds for a single share. You can start investing with however much income you can spare, but starting with at least a few hundred dollars may help you set up a more diverse portfolio.

Many investment advisers have minimum investment requirements. You’ll need to research your local advisers and determine whether your financial situation fits in with their requirements, fees and strategies. 

Understanding How Much You Should Invest in Stocks

Your age, experience level and finances play a part in determining the best investment strategy for you. While some may be able to allocate 15% of their income, others may only be able to do 5%. Rather than investing too much, it’s best to evaluate your finances to determine the percentage that will help you achieve your goals, not set you back. Here are some factors you should consider. 

Define Your Financial Goals

Start by identifying your financial goals. Are you saving for retirement, buying a house, funding education or building wealth? Each goal may have a different time horizon and risk tolerance, which will influence your stock allocation. Additionally, you may have multiple goals that you’ll need to prioritize and determine the appropriate allocation for each. 

Assess Your Risk Tolerance

Consider how comfortable you are with the potential ups and downs in the stock market. If you are risk-averse and prefer stability, a lower stock allocation might be appropriate. Conversely, if you can handle higher levels of risk, a higher stock allocation might be suitable.

Diversification

Diversifying your investment portfolio is essential to manage risk effectively. Don't put all your money into stocks; consider allocating to other asset classes like bonds, real estate or cash. The right mix will depend on your risk profile and investment strategy.

Time Horizon

Your investment time horizon is the length of time you plan to hold your investments before needing the funds. Longer time horizons may allow for a higher allocation to stocks, as you have more time to ride out market fluctuations. Higher stock allocation may be appropriate if you have a long-term investment strategy. But if you’re investing for the short term, it may be best to allocate a larger sum to less-risky investments.

Emergency Fund

Before investing in stocks, ensure you have an adequate emergency fund. An emergency fund with three to six months' worth of living expenses in a liquid and easily accessible account will provide a financial safety net. This way, if you need extra funds, you won’t be forced to dip into your investment account.

Consider Your Age

Do you wonder how much should I invest in stocks for my age? Typically, younger investors can afford to take on more risk, as they have more time to recover from potential market downturns. As you approach retirement age, it's common to shift towards a more conservative allocation.

Seek Professional Advice

If you're unsure about how to allocate your investments, consider consulting with a financial advisor. An adviser can help create a personalized investment plan based on your specific circumstances and goals. To ensure you’re working with a trustworthy and reputable adviser, ensure you run a FINRA Broker Check. 

Avoid Timing the Market

Timing the stock market can be challenging and risky. Even experts struggle to predict how the stock market will move. Unforeseen events can affect the market at any moment, so instead of trying to predict short-term market movements, focus on long-term investment strategies that will carry you through the fluctuating market.

Regularly Review and Rebalance

As your financial situation changes, it's essential to review and adjust your investment allocation periodically. Rebalancing your portfolio ensures it stays aligned with your risk tolerance and goals.

Considerations for Beginners

Being a beginner investor can be overwhelming, and many new investors ask questions like “How much should I invest in stocks as a beginner?” Whether you just started earning a steady income or are a beginner trader, there are a few strategies you should follow to start growing your portfolio.

Start Small and Gradually Increase Investments

Likely, young and beginner investors may not be able to meet the 15% allocation guideline, and that’s okay. New investors should start by allocating small sums toward their investment portfolio. This way you can slowly grow your account without overextending your finances. As you get more comfortable and earn more income, you can start to increase your investment. 

Diversify Your Portfolio

Diversification is the key to success, as it allows you to mitigate risk. You should invest in different assets, such as bonds, stocks and mutual funds, and across market sectors. This might mean you have some stocks in technology, some in pharmaceuticals and others in consumer goods. If one of these sectors dips in value, it can be balanced out by other investments. 

Seek Expert Advice and Build Knowledge

Growing your understanding of the markets, learning how they work and exploring investment strategies will help you make more informed decisions. Consulting an investment adviser can help you create a personalized investment plan that will help you meet your goals. Additionally, you can conduct your own research through resources online like Benzinga Money. 

Avoid Common Mistakes

Beginner investors can get overzealous by overinvesting in a single stock. Or maybe they think they can get quick gains by chasing meme stocks. Sometimes they just forget to review and rebalance their portfolio. All of these mistakes increase risk and can make it harder to achieve your goals, even if it’s tempting. Ensure you make informed decisions that will help you in the long run. 

Work Toward Your Financial Goals

Starting or expanding your portfolio is one of the best ways to achieve many financial goals, such as saving for retirement, growing wealth or making a large purchase. However, to make steady progress toward those goals without overextending your income, you’ll need to evaluate your finances to answer the question “How much should I invest in stocks?” By using thorough research, seeking professional guidance and coming up with an investment plan, you can start growing your portfolio and wealth. 

Frequently Asked Questions