I want to invest in equities, but I don't have much money. Is there a minimum number of shares I must buy?
I suggest opening an account with Charles Schwab and start a monthly investment plan with the amount that you can afford. They have proprietary Schwab One exchange traded funds that have zero transaction costs. I believe they also waive the $1,000 minimum account size if you set up an automatic investment program. They have 200 low cost investment options. The most important thing is to take action and get it set up. It will be fun to watch it grow and you can increase your contributions as your income rises.
There are some companies trying to make the financial services industry easier and more cost efficient for customers to use. They are called "FinTech" companies and one of those companies that does stock trading without commissions is called Robinhood. There is a Robinhood app, and you and can learn more about them on their website.
With Robinhood, you can buy and sell stocks without paying the $7 - $10 commissions charged by other brokers. They have no account minimums to open an account. You can purchase as little as one share of a company. It is designed as an easy way to get started with investing.
The short answer is "no" - you can buy a single share of any publicly traded company if you want to. Thus, if you have a small amount of money to invest, you can, in fact, buy a small number of shares of a public company. Most brokers will process a trade for a few shares of common stock, as they receive a commission for their services anyway.
However, just because you can invest your savings this way, does not mean that such an investment will be a good one. You have two major obstacles which must be mitigated before going ahead and buying a small number of common shares: diversification and transaction costs.
First, you need to strongly consider the costs of under-diversification if you are going to begin your investment portfolio with a single stock. If you have no other investments, investing in only one company exposes you to an excessive amount of company-specific risk (i.e. if your chosen company is the next Enron, you could lose virtually everything). Thus, if you have a small amount of money to invest, a much more efficient portfolio can be constructed by buying into a mutual fund. A mutual fund is essentially a large basket of investments bundled together, and will provide growth opportunities for a reasonably low amount of risk. (For further reading, see The Importance Of Diversification and Portfolio Protection In Diversification And Discipline.)
Second, even if you can stomach the risks of under-diversification, your next hurdle is a high one: transaction costs. Suppose your brokerage charges you $30 commissions for each trade. If you plan to buy and (hopefully) sell a stock for a profit, you will incur $60 of transaction costs. If you only had $200 to invest, your investment would need to gain 30% ($60/$200) simply to break even - an extremely inefficient investment. Conversely, if you invested the same $200 in an open-ended mutual fund, you would likely only be charged a small management fee of, for example, 3%. This would leave you with 27% of the 30% you would have had to spend on a single stock purchase. (To learn more, see Don't Let Brokerage Fees Undermine Your Returns.)
When combined, transaction costs and the risk of under-diversification usually prove to be too costly for those who only have a small amount of money to invest. Therefore, rather than purchasing a few shares of a public company, buying mutual funds is often a much better option.
To learn more, read Mutual Fund Basics Tutorial and The Advantages Of Mutual Funds.
No, in today's world with discount brokerage firms, you could buy as little as one share, but the trade would still be around $8. So, you could first buy a couple of shares of Amazon, ticker AMZN, or Apple, AAPL, and then next time buy a couple of shares of an industrial stock or consumer stock so that you aren't concentrated within one sector, thus rounding out your investments as you go. Your portfolio will be more volatile, but you could easily make more money in the long run. If you chose this approach, I would stick with the best, strongest companies in the world.
Alternatively, you could invest in an Exchange Traded Fund (ETF) and get immediate diversification with one trade. For instance, SPDR S&P 500, ticker SPY, and get all the stocks in the S&P 500 currently $229.50/share or the PowerShares NASDAQ 100, ticker QQQ, which are the largest 100 stocks on the NASDAQ (tech & biotech heavy) like Microsoft, Intel, Google, Apple, Netflix, etc., currently trading at $125.40. This way, you could broad index exposure with just one or two trades. ETFs are like conventional mutual funds in that you get a basket of stocks at once, but like a stock, trade during the day.
Lastly, you could invest in a conventional mutual fund. These only trade at the end of the day and you receive the Net Asset Value, or NAV. This is where they add up all of the stocks within the fund by weight to determine the NAV value. But like an ETF, would provide diversification immediately. Mutual funds typically have minimums of $1,000 or $2,000 initially, but then you can add in $500 dollar increments. In IRAs, the minimums are usually lower. And some funds do have lower minimums.
These are your options to research. Best of Luck, Dan Stewart CFA®
There are a variety of ways to do this and I'll mention one here. They have been around for decades and are called DRIPs or Dividend Reinvestment Plans. Many large US companies offer them. There are low investment minimums and can either be low or no-cost to participate. A typical scenario is that you purchase a set dollar amount of stock regardless of price each month. When I started my first one about 20 years ago, it was $25 per month and you could increase it as your budget allows. I was a college student and it was all I could afford. But I was excited to begin investing in the stock market.
There are some downsides to this. One is that investing in one company can be risky due to lack of diversification. You would want to add other companies to reduce single stock risk. Another is that there may be some restrictions as to when you can sell.
Please note that this should not be considered investment advice, but educational instead.
Best of luck on your investing journey!
David N. Waldrop, CFP