Have a lot of money but don’t know how to start investing?
Most people think that if they have a lot of money, they can just jump in and start buying large amounts of stocks – after all, the more you put in the more you get out, right?
But this isn’t always the best idea. In fact, it can be very dangerous to invest all your money at once! You could lose everything if the market takes a turn for the worse – especially if you don’t know what you’re doing.
In this post, we’ll explain why it’s often better to start small when you’re first getting into investing, even if you have a lot of money.
A Little Bit Of Money Can Go A Long Way
There are advantages and disadvantages to both having a lot of capital, and not having very much at all when you first start investing and trading.
Pros and Cons of Having A Lot of Capital
For example, while having a lot of money available to invest is an advantage, it can also create the illusion that it’s okay to lose money and be riskier with your decisions (after all, high risk = high return, right?). This can lead to careless mistakes. You’re also targeted for dubious investment schemes that usually involve tax minimisation.
Pros and Cons of Not Having A Lot of Capital
If you have a small amount of money to invest, you’re likely to be more careful with it. You’ll do your research, think carefully about each decision, and take a more slow and steady approach. But if you’re not careful with your mindset and you get caught up on hype easily, you can also be the target of get-rich-quick schemes that involve leverage (i.e. borrowing money to magnify your returns).
Regardless of your starting capital, the key is to have the right mindset.
The Right Mindset For Stock Investing And Trading
There are a couple of foundational mindsets to have if you want to be successful in stock investing and trading. If I’m to quickly list what I think are the most important ones, it’s:
- You have to be okay with losing money.
- Focus on risk management, and the results will come.
- Have realistic expectations of the types of returns you can create.
- Stay away from get-rich-quick methods that rely on leverage
With these thoughts at the back of your mind, let’s move on to the next section where we’ll discuss in more detail why it can be better to start small when you’re first getting into investing.
7 Psychological Benefits Of Starting Small When Investing
Fostering the right mindset doesn’t happen overnight. There are many psychological benefits of starting small when you’re first getting into investing. Here are X of them:
1. You’ll learn the ropes without risking too much.
When you’re starting out, it’s important to learn as much as you can about the stock market before investing large sums of money. By starting small, you’ll be able to learn about different strategies, what works for you, and how to manage your risks. This will help you become a more successful investor in the long run.
2. You Can Get Used To The Idea Of Investing
Investing can be a scary proposition for some people. If you’re not used to the idea of putting your money into something that fluctuates in value, it can be tough to stomach big losses. By starting small, you can get used to the idea of investing and the ups and downs of the stock market. You’ll also learn to be comfortable with a bit of risk.
3. You Can Focus On Learning The System
When you’re first starting out, it’s easy to get caught up in the excitement of buying and selling stocks. But if you want to be a successful investor, you need to focus on learning the system. By starting small, you can focus on learning how the stock market and your investing/trading system work instead of how much money you’re making.
4. You Can Avoid The Pressure Of Making Quick Profits
When you’re starting small, there’s no pressure to make quick profits. You can take a more relaxed approach and focus on the long-term. This can help you avoid making impulsive decisions that lead to losses.
5. You’ll Be Less Likely To Make Impulsive Decisions
When you have a lot of money, it’s easy to get caught up in the excitement of the market and make impulsive decisions. This can lead to big losses. By starting small, you’ll be less likely to make these types of mistakes.
6. You Can Stay In The Game Longer
If you start small and lose a bit of money, it’s not the end of the world. You can still stay in the game and learn from your mistakes. On the other hand, if you start big and lose a lot of money, you might be discouraged and give up altogether.
7. You Might Make More Money In The Long Run
This one is a bit counterintuitive, but it’s true. If you start small and focus on learning and building your portfolio slowly, you’ll be in a much better position to make money in the long run.
So there you have it, seven psychological benefits of starting small when investing. Hopefully, this has helped you understand why it can be better to start small instead of big when you’re first getting into the stock market.
Okay – But How Much Is ‘Small’?
A good rule of thumb is to start with an amount that you’re comfortable with and that won’t make you anxious. Once you get started, you can always increase your investment if you feel comfortable doing so.
We have rough guidelines that I typically suggest to members of the Blueprint community depending on their chosen investing/trading strategy:
- If you’re actively trading in the short to medium-term, a small account would be about $20,000.
- If you’re passively investing in the long-term, a small account can start with just $100.
If you’re looking at those numbers and not sure why there’s such a big difference between what’s considered ‘small’ for those two different strategies, check out the post we’ve got on how much money you need to get started with stocks.
➜ Related Post: How Much Money Do I Need to Start Investing or Trading Stocks?
Start Small. Scale Slowly.
When it comes to investing, there is no magic number. It depends on your individual circumstances. If you have a lot of money, you might be able to start with a larger sum. But if you’re starting from scratch, it’s probably best to start small and gradually increase your investment over time.
Once you’ve become comfortable with the idea of investing and you’ve built up a solid foundation, you can start scaling up your investment portfolio. But even then, it’s important to take things slowly.
Investing is a marathon, not a sprint. By starting small and scaling slowly, you’ll be in a much better position to weather the ups and downs of the market and make money in the long run.
Investing can be a great way to grow your wealth, but it’s important to approach it with caution. Starting small and scaling slowly is one of the best ways to get started. Not only will you avoid making mistakes that could cost you dearly, but you’ll also set yourself up for success in the long run.