How much does it really take to start buying shares? Some people associate the stock market with big money, so think that the answer will inevitably be a big number.
In fact, it is not!
Starting on a small scale, sooner
One of the things I like about the stock market is the fact that you can meet it on your own terms. Or, to put it another way, an investing approach can be tailored to each specific investor’s financial situation.
That means as a general rule, there is not really such a thing as a minimum amount to invest. That can shave years off a potentially long wait to save up a large sum and start buying shares. It can also make any beginner’s mistakes less costly.
Still, while there may be no minimum amount to invest, there could still be some minimum costs, such as for an investing account administration fee or dealing charges. So it pays to compare options when choosing a share-dealing account, Stocks and Shares ISA or trading app.
Are you ready to invest?
Being ready to start buying shares is not just about how much spare money you have though. It involves some other questions too.
For example, do you have at least a basic understanding of how the stock market works? Have you got to grasps with key investing concepts like how to value shares?
Have you set your investing objectives and also properly considered the risks involved? Such steps need not be complicated or time-consuming, but they are important.
Simply charging into the market with a bit of cash and a single investing idea based on what you think a business’s prospects look like without even looking at its accounts is very rarely a recipe for long-term stock market success.
One share to consider on a small budget
One simple way to try and reduce risks is by diversifying across different shares. With £250, it would be just about possible to split the portfolio over a couple of different shares – but that would offer only modest diversification.
Another approach to gaining diversification is buying shares of an investment trust that itself has a portfolio spread over dozens of different businesses. One I think investors should consider is City of London Investment Trust (LSE: CTY).
It basically focuses on large blue-chip companies – think of some of the biggest names in the FTSE 100 and you will already be thinking about some of the trust’s bigger holdings, though it does have some stakes in more modestly-sized FTSE 250 firms too.
That approach may not sound very exciting but I see a few potential advantages.
One is the passive income opportunity. Dividends are never guaranteed for any share. But City of London has been paying them for decades and indeed has even been growing its dividend per share annually since the mid 1960s.
Its focus on blue-chips could help a new investor get first hand exposure to a range of big companies, even on a limited budget, and thus see in practice not just theory how the market can work.
That concentration is a risk too. If the UK economy slows down, City of London’s portfolio could well follow. From a long-term perspective though, I like its investment strategy.
Should you invest £5,000 in City Of London Investment Trust Plc right now?
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Christopher Ruane has no position in any of the shares mentioned.
