How Many Shares Do You Need To Make Money?
So how many shares do you need to make money? This is not an easy question to answer as it depends ow what you are investing in. In this post we will discuss the options that you have when investing in stock so that you can decide what is best for you.
You need to take a few things into account when determining how many shares of a stock to purchase. The first thing is to identify how much money that you have to invest. In some cases, you can purchase fractional shares in a stock but this is not always an option. We would also recommend that you diversify your investments.
How many Shares do you need to Make Money — Price
With your investment amount in mind, you first have to calculate how many shares you are able to purchase. These days, it is common for brokers not to charge commissions for trading stocks so we will not consider any commission costs.
Once you have identified the stocks you are interested in you need to check the current price of the shares. This is easy to find on financial websites or you can ask your broker. It is best to check for real-time prices rather than delayed prices.
Now you need to divide your investment amount by the current share prices of the stocks. If there is an option to purchase fractional shares, then add this into the equation. You will probably find that this is not an option so you will need to do some rounding down for the full share prices.
You should always Diversify
Some new investors will invest all of their capital into one stock. It is better to create a portfolio of shares so that you can spread the risk over different stocks. Always remember that share prices can go down as well as up.
The experts recommend that you aim to have between 10 and 15 different stocks when first starting out. If your broker charges commissions on stock trades then this will increase your costs. Find a broker that will not charge you any commissions so that you can diversify without additional expenditure.
Should you Consider Purchasing a Single Share?
What happens if you can only afford a single share in a stock as part of your diversification? Is it ever worth just buying a single share? The answer is yes. Now that most brokers offer commission free trading it is a lot easier to make a purchase of a single share.
People are doing this more and more now. They have some money left over from their initial purchase of other stocks and they decide to use this small amount to buy a single share. There is nothing wrong with this at all.
The situation changes if your broker charges a commission on stock trades. Let’s say that you have around $35 available and you want to purchase a single share that has a current price of $30. If your broker charges $5 for this transaction then your cost here will represent around 17% of the investment value. In this situation a single share is not viable.
There is no reason why you should pay broker commissions these days. Many of the top brokers are now charging zero commission fees for stock trades and you should check these out. Why pay commissions when you don’t need to?
What about Buying Fractions of Shares?
This is sometimes a possibility. Fractional shares are not a new concept and have been around for many years. The concept began to provide an option for reinvesting dividends. If you are receiving dividends from one of your stocks then there may well be an option to buy more fractional shares in the stock.
Nowadays, the concept of purchasing fractional shares is available to everyone. If you broker permits you to purchase fractional share4s then you can do this if it makes sense. There are a few stocks now that have a very high price. A good example of this is Amazon Inc. At the time of writing this post, a single Amazon share was around $3,500.
With the option of fractional share purchases, you can buy into stocks that have high share prices such as Amazon. In addition to this, you can invest all of the capital that you have available. Let’s consider the Amazon example here.
You have $5,000 to invest. Purchasing a single Amazon share will leave you with around $1,500. If there is the opportunity for you to obtain a fractional share in Amazon, then you can use this $1,500 and actually purchase 1.4 shares in the stock.
How many shares do you need to make money? This depends on a number of things. Every investor is different, and the amount that you have available to invest is a critical factor. You also need to take into account whether you want to diversify or just go for a single stock. Commission fees should not be a factor as there are many brokers that do not charge these days.