Just how much does it take to start investing in the stock market?
The high-powered image many people have of City firms can mean that, for a first-time investor, even thinking about that question can feel intimidating.
In reality though, someone can start investing more or less with whatever spare money they have. Say someone has £20 per week they can spare. Here is how they could use it to start buying shares.
It’s a myth that investing takes lots of money
Some types of investment require large upfront costs.
As many shares sell for just a few pounds, or even less, that is not the case when it comes to investing in the stock market.
Starting small can offer some advantages, such as the ability to get going immediately without waiting years to save up the capital and – hopefully – the lower cost of beginner’s mistakes compared to if more was at stake.
What about diversification though?
Spreading risk by owning different shares is a simple but powerful risk management strategy. And £20 a week is over £1k a year. That is enough for someone to diversify across a few different shares.
One possible downside for someone who wants to start investing with modest sums is the impact of minimum dealing fees and costs.
That is one reason why it can pay to shop around when selecting a share-dealing account, Stocks and Shares ISA or trading app to use.
Thinking big – on a small scale
Diversification is not the only way in which someone can decide to start investing with the same approach they would use if they had more funds at their disposal.
Building a portfolio of high-quality shares that hopefully offer long-term financial gain potential (whether through capital growth, dividends, or both) is another.
I tend to follow billionaire investor Warren Buffett’s approach when thinking about how to find shares to buy.
In other words, stick to what you know and understand, look for businesses that seem to have a sustainable competitive advantage and try not to overpay for the shares.
One share to consider
As an example of that sort of approach, one UK share I think investors ought to consider is FTSE 100 financial services firm Standard Life (LSE: SDLF).
The pensions and retirement specialist operates in an area of the market that has high barriers to entry thanks to the complicated regulatory environment.
A large long-term client base, strong brand names and deep financial markets expertise are all also things I think can potentially help it do well.
Standard Life aims to grow its dividend per share annually. That is on top of it already having a 7.1% dividend yield.
In layman’s terms, that means that £100 invested today will hopefully earn £7.10 a year in dividends, even before considering any growth. That is over double the FTSE 100 average.
But no company’s dividends are ever guaranteed. Weak consumer sentiment and a lack of spare cash could see some policyholders slow down contributions to their pensions, potentially hurting earnings at Standard Life.
As a long-term investor, though, I like the outlook for this proven blue-chip company and see it as one to consider.
Should you invest £5,000 in Standard Life right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Standard Life made the list?
Christopher Ruane does not hold any positions in the companies mentioned.
