Answering: Can I Trade Stocks With $1,000.00?

Answering: Can I Trade Stocks With $1,000.00?

August 5, 2019

I received this question in an instagram DM last week, and I replied back so fast with a definitive:

No.

I mean sure, you can buy and sell stocks. But you can not trade for a living with just $1,000.

Here’s why:

You would have to take a tremendous amount of risk to create a livable income on just $1k in invested capital. The odds of being able to do that even once are low - but consistently? Pretty close to 0.

In practice, the stock market is a very, very competitive place. If you look at it as a casino to multiply money 100x every year, you are going to get your butt whooped.

You need to reframe your thinking and understand that the market isn’t a craps table - it is where you can go to purchase portions of businesses. Other people want to purchase this ownership at the best (lowest) price - and they want to sell ownership back to you at the highest price to make a tidy profit for themselves.

So you, someone who wants to buy ownership at the lowest possible price, need to know when there is value somewhere that the seller might not be seeing.

I dig into the specifics of how the market really works in THIS POST.

Basically, before you start trading stocks, you need to know that they are just a % ownership of a business.

Then, you need to think about what most businesses REALLY are. They are organizations that operate to make a profit margin, the most profitable earning 30%+ returns on their revenue per year.

This translates into (usually) stable, and relatively modest returns that would pale in comparison to the tall tales of your grandfather’s gambling spree in Vegas where he won thirty Gs in one night!

But, after realizing that a 30% annual return on $1,000 compounded annually for 30 years is $2,619,995.64, you may rethink your desire to gamble.

I am not claiming that you will hit 30% returns on average anytime soon (it is possible every 10 years to have one extraordinary year of returns over 25%) but $1,000 growing at an even more modest 7% for 30 years, adding $500 each month, is well over 600k. Not bad!

Here is a graph of different investment amounts compounded over time:

So instead of taking the “homerun” approach - try having a long-term investment mindset. The numbers will get VERY big, VERY fast! This usually motivates people to get their financial life in order. (Imagine how much you could invest if you didn’t have to make any debt payments? Pay it off!!!)

Also, being able to forego the present value of your money and investing it to create more spending power down the line is a HUGE portion of personal finance and is what separates those who get rich from those who spend all they have.

Warren Buffett, one of the most amazing investors of all-time, says that “Someone's sitting in the shade today because someone planted a tree a long time ago.”

And this mindset is EXACTLY what you need when you think about your money. Plant the seeds that will grow to be big oak trees. Start building wealth NOW so that down the line, you don’t have to worry about money anymore.

This is why, instead of trying to trade your way to millionaire status with just $1,000 - it is better to be productive, get paid, spend less than you make, and consistently invest for the long-term.

Another argument against actively trading for small players is that huge hedge funds are spending hundreds of millions of dollars a year on research, talent, and tools to take positions in the same market as you. They are your competition.

If you think you have an edge over them (whether that be a sixth sense, or some mathematical approach) then go for it! But I always advise more inexperienced investors to take the glacier, or long-term approach.

To learn more about long-term investments and the approach I recommend most - read this blog post

This long-term vision for investing will make it much easier for you to pick investments that will last and provide solid returns for the long haul! Which is really the only thing that matters when it comes to investing; longevity!

In other words, it doesn’t matter if you do this for 2 years and get lucky. It matters if you can consistently perform and create value. The only time tested way to do that for the average investor is by following the principles set out in the blog post linked above. (In short - buy low cost index funds and hold them forever)

You can START doing this with $1k, but if you’re also asking “Can I trade stocks for a living with just $1,000?”

My answer is a definitive no!

However, to those who would rather pursue long-term investment: See you on the other side :)

MDAS

If you thought this was helpful, terrible, or somewhere in the middle, please leave me feedback in the form of a Direct Message on instagram @MakeDollarsAndSense, or feel free to send me an e-mail/text to the information on my Home Page. I truly appreciate constructive criticism and opposing views, so bring em on!

P.S. New blog posts coming your way every Monday!

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