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Busting an Investing Myth: You Don’t Need a Lot of Money to Start Investing

“It takes money to make money” is a phrase I hear often. The idea behind the phrase is that one needs to have a huge amount of capital in order to invest.

I remember getting a question once from one of my old army friends on how much he’d need to save in order for him to get started investing in stocks – he had assumed the answer was “a lot.” My response though,  was that he can start investing immediately so long as he is able to set aside just a few hundred dollars every month.

The existence of monthly investment plans is one reason why my response was so. Monthly investment plans are offered by many financial institutions in Singapore (here are two from Maybank Kim Eng and POSB as examples). Under such plans, an investor can set aside a sum of money (as little as S$100 each month) to buy a basket of stocks of his choice at a fixed time each month.

There are benefits that come with monthly investment plans. The most visible would be the ability to dollar-cost average into the stock market.  Monthly investment plans can also act as a safeguard for retail investors against market-timing, which is the act of jumping in and out of shares to catch stock market tops and bottoms.  Market timing can be a dangerous move for investors to make as it’s very hard to get it right and many pros fail at it too.

A big change in Singapore’s stock market that happened this January is also another reason why investors can now invest in increments of hundreds of dollars: Gone are the days when a standard lot size is made up of 1,000 shares.

With bourse operator Singapore Exchange having reduced the board lot size to 100 units, retail investors can now invest with much smaller sums of money. For some perspective, one lot of the blue chip real estate developer CapitaLand Limited can be purchased with only S$315 (excluding commissions and trading fees) with its last closing price of S$3.15.

Foolish Summary

The idea that one needs to have a lot of money to get started in investing is just a myth. Unfortunately, it’s a myth that may have stopped some from starting to invest. And, that has to be stopped.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.