How much will I have to start with in order to be able to make a living off of investing in the market?
Best Answer
234 points
KenLong answered 3 months ago …
How much are you capable of making, as a percentage of the whole account? How much do you need to live on?
What sort of investor/trader are you?
Are you a long term investor willing to accept 20% per year. Can you do this consistently? When you average your good years and your bad years, can you make a high enough average to live on. What are you going to do when you have a bad year, or two? You cant spend your investing capital without hurting your future returns.
The initial goal should be to take a small income, no more than half the profits you produce. While you grow your account and skill levels to the point where you can feasabily support yourself. Idealy you'll want seperate moneys for trading, living on, and stashing away for bad weather. Also you'll probably want different levels of trading capital. Some should be put into secure investments, while some could be used for more speculative trading. What you really need is a plan. Any plan as long as the odds work for you and you can follow the rules.
If you have $500,000 and you can average 20%, then you could potentialy take $50,000 for living and reinvest $50,000 into growing your trading business. As you can see a lot of this depends on what you have to start with, how you intend to trade it, and your skill level in achieving your goals. 20% is just an average number pertaining to a good longer term investing style. A good short term trader should be able to do several times that amount, just beware, many traders tend to lose rather than gain.
Answers
360 points
SirCrashton answered 3 months ago …
This is a difficult question to answer but, since I plan to supplement my retirement income by investing in the market, I’ll contribute my two cents to the discussion by relating my experience with paper trading I’ve been using which is designed to simulate my future situation.
The most obvious question is how much money per month do you need to “make a living” from the market? Moreover, you will probably want to keep some of your funds in cash so whatever amount that might be should be deducted from your working capital.
My personal objective is to generate $1500-$2500/month which represents a 3%-5% return on my investments. I plan to do this using $100,000 with approximately half of that allocated to cash at any given time. My investments tend to be conservative and selling covered calls is a stress-free way to earn income on stocks that I own. In addition to income from dividends and anticipated appreciation of stock values, I’ve found that call/put options are an excellent vehicle with limited risk for short-term gains in both bull and bear markets.
I cannot stress enough the importance of learning as much as you can about options and gaining extensive simulated option trading experience before using real money. Option prices can move much quicker and unexpectedly than stock prices. For this reason, you might consider spread trading as a hedge because stop loss limits can sometimes prematurely knock you out of a profitable position.
Using the information above, you can see that I expect to earn $18,000-$30,000 per year using $100,000. My experience to date indicates that this is a realistic goal. In my humble opinion, this represents a minimum amount to generate my expected rate of return.
245 points
Dusty answered 3 months ago …
Your question says that you have so much to learn that the question is not answerable. Try it as a joke: If you start with $5 Million today, maybe in a year, with good luck, you will have $100K left for the next year. Then go get a job!
Reasonable return on investment, if all goes well, is about 4% to 5%. In today's dollars you would need $300K to $500K minimum invested in safe, stable securities. If you are young and looking for a target figure, adjust that amount upward at the rate of inflation for enough years to reach your intended retirement. This amount of money- $20K+ per year- assumes you own a house that is paid for and have no other significant expenses. All it is intended to do is keep you fed and able to lead a carefully budgeted life in a low-cost southern-midwest city.
Inflation has a historical rate of increase such that the value of the dollar since WW-2 falls by half each 14 years; or read it as prices double each 14 years. That value works quite well if back-tested. So in 14 years prices will double, in 28 years they will double again, and in 42 years they will have doubled a third time. It is a logarithmic function.
With a $10 'scientific' calculator you can do the inflation calculation easily. Start by dividing the number of years you are thinking about by 14. This is your variable exponent, or ' y to the x.' Then multiply your starting amount of money or initial price or value figure by 2. The "2" is taken to the power of that exponent. The result is the future dollar amount. The calculator does not blink if fed an exponent of decimal places or taken to several decimal places. Also, if you want to find a value equivalent for a long time ago, like the price of your stereo had it been availabe in in 1952, just make that exponent negative. Do not do this for periods of more than a couple of years into the future unless you have a strong stomach and high resistance to panic.
583 points
jillybeansisme answered 3 months ago …
Basically, Sir Crashton is telling you that:
-- you need a budget to figure out how much you need to make monthly
-- you need to figure out your risk tolerance
-- you need to figure out what kind of investing you want to do (options require less money; however they are quite risky)
-- everyone does well in a bull market but you need to know how to save your bankroll in a bear market such as we are experiencing now
-- your age will be a determining factor on what types of risk you should take
-- you need a backup plan (it is possible to lose fortunes in one trading session)
-- you need to be able to see through all the hype of many investment letters (one penny stock letter claims you can make millions in a couple of years beginning with $200). Remember, most investment claims are from a numbers cruncher rather than someone who is actually using their own money.
-- Most day traders lose their shirts
-- It is possible, but do your homework on it before you quit your day job. Investing in the market takes time (you'll be online rather than on the golf course in the mornings).
How is your current portfolio doing? That should be an indication of schooling you need.
3127 points
EthanR answered 3 months ago …
Market101 did not say in his question that he was going to day trade, he merely said he wished to make a living from investing in the market. I think it is entirely possible that he can do that. However, he will need to do the following before he invests one red cent:
Read, read, and read some more about stock market investing. Study both fundamental and technical analysis.
Start off by paper trading. Pick a handful of stocks that you like, and allocate a mythical bank roll to them. Then 30 days later, see how you would have done. During that time if one of those stocks does really well, pick a mythical point at which time you would have sold it, then compare that price to where it is on day 30.
Get completely out of debt. If you have any debt, you shouldn't be in the market trying to make a living.
Pay your usual monthly bills three months in advance- rent/mortgage, utilities, etc.
Now you are ready to begin. You are debt free, you have knowledge, and you can make lots of mistakes on paper before you start the real thing.
How much money will you need? Well, that depends on how much you want to earn per month or per year. Figure that out first, use 5% return as a conservative estimate to start, then see how much trading capital you will need. If that's not enough, you either need to get a better return or you need to have more capital.
Good luck with it. Keep good records, and let us know how it's going!
114 points
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