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Investing in the stock market: How much money do I need to start based on my salary and savings?

Date: July 18, 2024 Time: 11:54:50

Starting to invest in the stock market is not difficult, anyone can access the markets and it will only be enough to resort to an authorized financial intermediary. However, before making the first investment, several issues must be taken into account. The CNMV recommends asking two questions: whether it is convenient to invest in the stock market -taking into account the investor’s financial objectives- and what the investor’s profile is -based on the level of risk that can be assumed, the financial objectives or the term available to invest go your money-.

Before making any investment decision, it is important to carefully analyze the financial situation of the investor. The Spanish financial regulator points out that if you have outstanding debts for which you pay very high interest, such as credit cards or other consumer loans, it will surely be more advisable to allocate your savings to lower or eliminate them, before thinking about investing.

The objective is to first clean up the financial situation to avoid added expenses that could complicate it in the event that the investment entails losses. And once the financial situation has been analyzed, each investor will decide his investment based on his profile according to his financial and personal situation. Specifically, the financial objectives will be taken into account, the level of risk that you can assume or the term you have to invest your money.

No minimum import

There is no minimum amount to invest in shares, although the fees associated with the investment charged by intermediaries must be taken into account so that they compensate the investment. In addition, the amount to start investing will vary depending on the profile. The CNMV warns that “the main risk of equities is the uncertainty about their returns.” In other words, the value of the shares can go up or down with respect to their acquisition value and it is possible not to achieve the expected return and even lose the entire investment.

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For this reason, for investors with fewer resources, it is more advisable to invest with less import but one that is financially acceptable, or carry it out using a simpler instrument that minimizes risks. In fact, the CNMV directly recommends not investing if there are outstanding debts that carry very high interest. “Surely it will be more advisable to allocate your savings to lower or eliminate them, before thinking about investing,” explains the financial regulator.

Also, keep in mind that not all savings should be invested. The CNMV highlights the importance of the emergency fund in personal financial planning. It is a set aside savings as a “safety cushion” to be able to face important unforeseen expenses and protect you in case of suffering a loss of income for any reason. You should not invest that money in the stock market, since you do not know when you might need it. It may be necessary to sell the shares when their value is low, resulting in a loss.

What percentage of my income to allocate to investing in the stock market

In other words, it is important to allocate the amount that each investor can afford to lose. Usually there is talk of allocating between 20% and 30% of monthly income to savings. A common rule to determine the percentage to allocate is 50-30-20, which allows, first of all, to control income and also obtain an extra to invest thanks to the savings obtained.

Specifically, divide each month’s income into three categories: basic needs -food, housing, supplies…-, dispensable expenses -leisure such as travel or restaurants, among others- and savings. 50%, 30% and 20%, respectively, will be allocated to each of these three categories. In this way, one fifth of the monthly income will go to savings to cover future issues.

Once the investment is made, it is advisable to follow up. “It is neither necessary nor advisable to always be aware of the stock prices, but it is advisable to monitor other aspects that may affect you, such as the prospects and evolution of the business, variations in the company’s capital structure or its dividend policy, indicates the CNMV.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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