Why You Shouldn’t Invest in Small Amounts
For the last 5 years now I have been actively working to learn how to invest money and make a return. Unfortunately, there is a lot of misinformation surrounding how much you need to start and what you should do. While you have a chance to make money, you also can lose money just as easily. Therefore, I want to explain why you shouldn’t invest in small amounts.
Your Time is Important!
Many websites make trading sound spontaneous and that you could become a millionaire from a dollar. The truth is that you can make it from $1 to $1,000,000, but your options are very limited and/or increasingly risky. However, the main factor preventing this plan is the time requirements. To make a reasonable buy, you have to research the company or product and do due diligence. If you don’t, you could end up investing at a high with minimal returns or a low that is neverendingly decreasing. The worse the decision you make, the higher the likelihood that you lose the little money you have put in. Therefore, if you start with $1, you will have to do this repeatedly for pennies in returns. It is not a good use of your time to spend an hour researching a company to only may a cent off your investment!
The Small Amounts For Returns Are Not Practical!
While I am not disregarding the possibility that you can buy a penny stock and it goes up to say 1000% percent of its initial value, it is highly unlikely. Therefore, you will be spending more money to get more stable stocks with reduced returns. As expressed earlier, with a low initial investment of a $1, a 1% movement up would only net you 1 cent. You might be thinking that that is fine since you can make multiple trades often daily and it will add up. This is incorrect. Because of government regulations, you cannot day trade stocks unless the account equity reaches a minimum of $25,000. This means that you would have to sit and wait until the stock market opens the next morning to sell stock that may have decreased in value during the day before. This is especially hard on students.
Let us look at the best-case scenario.
As you can see in the table above, if you were to have $1 and have 1% growth daily, you would only make around 33 cents in thirty days. However, growth is not guaranteed and therefore, this is not realistic.
Your Investing Options are Limited!
Your available options are another reason why you shouldn’t invest in small amounts. To trade anything on the open market, you will need to sign up with some broker. However, brokers typically charge for their services, which if your only investing small amounts, will potentially cost you more than your investment. At the same time, you can not day trade, so you are at increased risk with low potential returns. This means that the best course of action would be trying to trade cryptocurrencies like bitcoin because they are not regulated in the same way as traditional stocks. However, due to the legal gray areas around cryptocurrencies, not every state or country allows its use.
Many cryptocurrency brokers still charge fees. You could though trade using Robinhood to get commission-free trading. The drawback is you must be able to buy stocks as a whole and not a fraction like you can do at other brokers. However, cryptocurrencies can be traded in fractions on the platform, but you do not own the coins since it is based on speculation instead of ownership like other crypto exchanges.
The Conclusion…
Overall, you shouldn’t invest in small amounts. If you were to make small additions to a saving account and use the small returns on interest, your money would be safer and more likely to grow. The stock market while potentially a gold mine can be potentially worse for your wallet than a casino and a whole lot less fun.
