Start on the stock market as soon as possible
The concept of opportunity cost must prevail over that of the highest risk of going public. Indeed, if you are looking to anticipate the next major crisis in the financial markets and wait for it to start investing, you run the risk of missing very positive stock market years. Statistically, it is better not to anticipate a fall in the markets.
Missing out on a positive stock market year by staying out of the markets will incur what is known as the missed opportunity cost. You lose the gains that would have been yours if you had invested mindlessly.
The real question: risk management
Rather than wondering when to invest in the stock market, focus on managing risk. If you are not comfortable with current equity market prices, following a long period of uninterrupted rise, prefer to reduce the risk, rather than delaying your investments.
Instead, build a portfolio with more secure assets. Any “Fund stability” allocation significantly reduces the impact of stock market crashes:
Avoid any leveraged instrument that could ruin your learning and scare you off for good.
The DCA approach
Another way to reduce risk is to use a Dollar Cost Averaging approach. It consists of a progressive, monthly investment of a certain amount of money.
If you want to invest $10,000, it consists of investing a portion of this amount each month. Say $500. It is therefore opposed to the full investment, from the start, of $10,000.
The DCA method reduces the average price at which you buy your assets, in the case of a market fluctuating up and down. It is very effective if you start investing just before a stock market crash because you will buy your securities for less and less.
On the other hand, in the majority of cases, a full investment will offer better performance.
The graph below shows the performance differential between a full investment and a DCA approach, depending on when you start investing. If the curve is below 0%, the DCA method loses.
The choice between a full investment and a DCA method is above all a performance/risk trade-off. The DCA approach allows you to reduce risk and is much preferable to inaction.
WHAT MINIMUM AMOUNT TO START ON THE STOCK MARKET?
The minimum amount to start on the stock market is a few tens of euros. That’s enough, the important thing is to start as soon as possible.
An investment in an MSCI World ETF can be made with € 50 and already offers good diversification into equities.
Below is the evolution of an investment with an annualized return of 9%, depending on your monthly savings ($50, $100, $200 or $500).
How much to live on the stock market?
To live on the stock market, the amount to invest depends on the annual return on the investment and the monthly income required for your pace of life.
- Let’s say the minimum is a little more than a minimum wage, i.e., $1,200.
- Suppose that the annual return varies between 5 and 10%. You get 7% off every year.
The sum necessary to invest in these conditions is then approximately $206,000.