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.
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.
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.
It's never too early to begin building financial habits. Millennials, more so than anyother generation must take control of their financial future, early and often. Before beginning to invest, I suggest checking out some books focused on young investors. The Millennial Advantage is a good start : ).
You need to build confidence and patience. $250 is not a lot but it's a start. My advice is to open an account with Betterment or Wealthfront or any of their competitors and start setting money aside on a regular basis.
I don't think anybody on this forum will recommend that you start gambling your money on the market. It's nit a good strategy for someone who is just starting. Even many experienced investors have burned out.