How do you recognize when you are ready to start investing?
I am curious what your thoughts are on investing at 23 years old with only a couple hundred dollars to play with right now. I have roughly $200-$250 that I want to start using to invest in order to grow the money. Am I better off waiting until I have more to play with? If so, how much is a good number to start investing? Should I proceed forward and start investing money into companies for short-term gains so I'm able to put said gains into more long-term investments?
From the standpoint of preparing for the future, you're certainly thinking the right way. The sooner you begin, the better off you will be. Although many folks wait until the years before retirement, it's much more helpful to get going now and take the long view. With that said, however, you would be well advised to consider making regular contributions, however small, to a broadly diversified investment vehicle rather than what amounts to the highly risky practice of buying a few stocks and keeping your fingers crossed. May I suggest a combination of two exchange-traded funds: VTI, Vanguard Total U.S. Stock Market ETF, and VXUS, Vanguard Total International Stock Market ETF. They are about $125 and $52, respectively, so you could buy 1 share of VTI and 2 shares of VXUS to get started. The trades can be done through online brokerage houses (Schwab, TD Ameritrade, etc.) for $5-7 each. As funds are available, you can add to these holdings.
I have to be honest that when I read questions about short-term gains I often cringe, but when it's someone young starting off, I actually will give you some advice that will be contrary to most. I suggest you go for it.
Short-term speculation is gambling, not investing. Investing is a long-term activity based on taking calculated risks. Speculation in stock markets is actually more gambling to me, because you are going for large gains at the cost of large losses, and there is no way you can have enough information to make a calculated guess that is better than the price the market gives to a stock.
But, I think it isn't as harmful to learn this lesson and to gamble while you're young, rather than wait until you have a lot more to lose.
To answer the original question, you first want to have appropriate protection in your insurances and emergency fund before you start investing or gambling. I would keep your 'play' money in a separate account than any investments, and I would limit it to 5-10% of your investment balance.
Great question! The answer is simple, you are never too young to start investing for your future. Now, "investing" and "playing" with your money are two different things. It would be a great idea to develop a long-term investment strategy and start putting money away. Unless you have a great deal of knowledge about the markets, you should not "play" with your money.
Take a peak at some scenarios where you make a monthly deposit with annual compounding of interest at 7% at the end of each year.
$25 per month would be $30,321.91 at the end of 30 years.
$100 per month would be $121,287.65 at the end of 30 years.
$1000 per month would be $1,212,876.50 at the end of 30 years.
As you can see, even small amounts invested for the long-term can become a nice little nest egg! I hope this helps. If you still have questions, contact a fee-only financial planner.
There is no better time to start investing than today. When I was 22 my friend set me down and helped me set up my first investment account with a whopping $25 per month. Invested in a single mutual fund and watched at my account grew. The important thing was to get started.
Pick a mutual fund, and set up automatic contributions on a monthly basis. Getting started is more important than picking the "best" investment. That being said avoid the trap of trying get rich quick with short term gains.
Since you're 23 and not 13, there must be a reason you have only a few hundred dollars to invest. I will guess that you have large student loans which you have not yet finished repaying and which might require several more years to go. I would recommend staying as conservative as possible and setting up an account with http://myra.gov/ where you will get 2.375% guaranteed by the U.S. government. The account is otherwise similar to a Roth IRA where you don't have to pay any taxes on the increase and where you can't actually spend the money until you're at least 59-1/2 years old.
Don't start speculating with U.S. equity funds or other risky investments which are near all-time highs. If you do that and end up losing half your money then it will discourage you from investing later on when you have more money and valuations are much better bargains. Once all your friends become afraid of the stock market then you can start gradually buying fluctuating funds of various kinds. This will probably not happen until around 2019.