#788 - What Is A Good Amount Of Money To Start Investing?

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The "Daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

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Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is a good amount of money to start investing?” I think that honestly, you should start investing with whatever you have, so as much money as you can possibly sock away into an investing account or a retirement account, you should start doing that right away. In fact, it’s often been said that the best time to plant a tree is 100 years ago or today. And so, if you haven’t already started investing, then the next best time to start is today, right now. Literally today, start transferring money into a brokerage account, into a retirement account and start putting your money to work because we know that the power of compounding works in our favor the longer that we have that money invested in compounding. When it comes to trading and specifically, trading options, we do believe that you should have at least $5,000 to start. And we say $5,000 not because we just pulled randomly this number out of thin air, but because if you were to start with less than $5,000, theoretically, you could start trading options. You could buy an option strategy. You could sell an option strategy for less than $5,000. But at $5,000 of account size, it starts to magically convert into the appropriate risk size and position sizing that we would need or we suggest here at Option Alpha to appropriately manage risk in the future. At $5,000, it leaves you ample room to leave some cash in reserve and also take whatever is left out of that cash reserve for trading and have enough cash available to diversify into an uncorrelated basket of tickers and all into an option selling strategy that’s overall market neutral. And so, that really starts to happen on a much better level where the numbers really start to work out, around $5,000. Could you do it with $3,000? Yeah, but then you start to get into position sizes that are more than 5% of your account and that really leaves you exposed to a lot of additional risk and a lot of sequencing risk that might otherwise derail your probability of success moving forward. Again, a good amount of money to start in my opinion is around $5,000 for options trading. If you’re starting with less than that, you can start buying into indexes or into short-term bond funds, basically anything that helps generate a little bit of extra return in revenue in your account as you start to save up and start to fund your investing account to get to that $5,000 level. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.