Are you ready to take a giant leap with your investments?
The more money you invest, the more money you stand to make. A simple equation, that unfortunately cuts both ways. The more you invest, the more you stand to lose.
That's one reason many investors struggle to invest big enough sums to build a portfolio fat enough to retire on. It just seems too dangerous.
It is painful enough investing £500, only to see the share price tumble 20% next day, but at least you are only down £100. If you invest £5,000, you are down £1,000. To many people, that is big money. We're not gamblers, and it can take a long time to claw it back.
One lump or two
So how do you make the leap up to investing large sums? That's the question I'm asking myself right now.
I've always invested lump sums, and started off tossing in £500 a pop. When I realised that was getting me nowhere slowly, I upped it to £750, then £1,500, still the maximum I have invested in a single go.
I'm comfortable with that figure, but I'm also aware it won't make me rich. If the stock pays a handsome 5% dividend, I bank just £75. If I'm lucky, and the share rises 20%, I'm only £300 to the good.
Not bad, but it ain't riches.
The big money
I've got several investment trusts that have risen 100% or 200%, a pretty good return by most standards, but since I invested just £500 or £750 in them, they haven't made me rich.
My biggest single direct equity holding is Aviva (LSE: AV), with around £4,000 of stock. When that rebounded recently, I was quickly hundreds of pounds to the good. I felt like I was getting somewhere (and I'm looking forward to the dividend payout as well).
But I built up my Aviva position in increments. I still haven't made a big call, but I want to get myself into the position where it's possible. How do I get from here to there?
Or to put it another way, what would it take for me (and you) to invest, say, £5,000 in a single trade?
1. A big portfolio
If you're a fresh-faced newbie with a few thousand pounds to invest, you don't want to gamble the lot on one stock. Especially if it's a biotech start-up you've seen tipped somewhere.
To invest big sums, you need relatively big sums behind you, plus a tidy cash back-up. You could set a benchmark, of, say, 5% of your portfolio. So to invest £5,000 in one company, you would first need a diversified spread of investments totalling £100,000. That sounds about right to me.
2. A rock solid stock tip
Yes, I know, there is no such thing. But to part with so much money, you should have carried out due diligence, with knobs on.
Nobody can account for the unexpected, such as an oil pipeline leak or ill-timed acquisition, but by doing your research first, you won't end up kicking yourself for missing an obvious warning sign in the company's figures.
This is the big one. When parting with bigger sums, you have to know what you're doing.
3. Ripe market conditions
You can't time the market, but there are times when you might want to clock off. Right now feels one of them. I wouldn't make a big, aggressive move into the market at the moment, with so many economic headwinds.
If markets tread water or retrench for a while, my courage might rise.
4. It just feels right
Trust your instincts. They will tell you when you are ready to take that big step.
Personally, I'm not there yet.
Look before you leap
The other question is: do you really need to make a big call? Well, no, you probably don't. Most of us are better off feeding in smaller sums, and building our portfolio over the decades. You can succeed without ever taking a big leap. Even if you come in to an inheritance, you can simply drip that in.
But if you want to accelerate the process, or make real money from a 10 bagger, you will need to be bold. Just take a long run-up, and make sure it isn't a leap in the dark.
More from Harvey Jones:
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