We are all in a habit of looking at every investment from a short term point of view, so that it would yield high returns; however as they advice if you really want your money to grow you need to opt for long term investment.
At the same time it is very much known that stocks are volatile; so to start with, typically you should have enough cash reserves to take care of your living expenses or handle any unforeseen emergencies or demands, that is what most of the financial advisors would suggest.
Do you Want Returns within Five Years?
The obvious and safest places to invest would be certificates of deposit of banks preferably; the best part here is that Federal Deposit Insurance Corporation guarantees safety of your funds for up to $250,000 against a minimum initial investment of a few hundred dollars or less.
Recently, rates of interest for 6 month CDs were about 3%. However if you are looking at exposing your principal amount to a little more risk then you can invest in short-term bond funds. For such investments the minimum investment requirement hovers around $1,000.
Do you want to invest for a much longer time frame?
Well now we are talking, you would definitely want to consider investing your funds where the returns grow faster and better, which of course means stocks. Stock market has outperformed every other kind of investment over a period of time.
Over the past half century inflation (courtesy: consumer price Index) risen at rate of 4.3%(annually), so looking at the way at which inflation reduces your power to spend, stock market is the only option that can help you out of this situation. And especially if you are looking at long term investment the best place to invest is in stocks. Now the worry is how do we get started? When and where to invest? Here are a few suggestions:
Invest in Mutual Funds
If you are a rookie investor the safe way to get a feel of the stock market is via mutual funds, which helps you to invest into diversified portfolio of numerous stocks/ bonds. The other major advantage that Mutual Funds offer besides diversification is that your funds are managed by expert stock traders whose core job is to closely follow the stock market. Mutual funds give you an option of investing as low as $500 to $1000 and as a novice you would rather want to start with minimum initial investment till you get a hang of it.
How do mutual funds work?
Day Trading on US Stock Exchanges
Well I would not suggest this, mainly because you ideally need $25000 in your account for day trading effectively (which is buying and selling stocks on the same day), this needs a lot of experience and know-how of the market and also calls for huge piggy bank.
Now to answer is $5000 enough?
Yes it is, we have already mentioned that if you are looking at investing in mutual funds you could invest a smaller amount than $5000, however if you are looking at trading at the stock market then to start with $3000-$5000 is a good amount, until you have mastered your instincts and emotions while trading.
Broker Selection Guide
As for commissions, you would pay about $5-10 per trade to popular browser-based discount brokers like E-trade, TradeKing or Scottrade.
At Compare Broker, we can assist you in opening an investment account with a leading brokerage. Visit our site for latest reviews of offers and promotions from different brokers. Our blog section is regularly updated with informative write-ups for traders and investors.
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