If you have ever thought you might want to start buying shares but did not have much spare cash to do so, you are not alone.
The good news is that the stock market is not just a place for people with large sums of cash. In fact, it is possible to start buying shares and building a portfolio for just a few pounds a week.
In this example, I will demonstrate that using the sum of £20 a week.
Time can be the investor’s friend
In isolation, £20 might not seem like a worthwhile sum with which to invest. But that amount squirreled away works out at over £1,000 a year.
Multiply that by 10, 20, 30 or more based on how many decades of active investing you may have ahead of you and you start to see how even fairly modest sums of money can add up over the long term.
But that is if the money simply sits doing nothing. What if, thanks to share price gains and dividends, it can actually generate a return over time?
There is a risk doing that, of course. Share prices can also fall. But say someone puts in £20 a year for 30 years and it ticks away in the background of their daily life, compounding at 5% annually. After 30 years, they ought to have a portfolio worth over £69,000.
Setting realistic goals
I think 5% is an achievable goal in today’s market with a diversified portfolio of blue-chip shares (diversification matters to reduce the overall impact on the portfolio of any one share performing poorly).
In fact, I think an investor could potentially do better over the long term, depending on how well they select shares to buy and what price they pay for them.
Other things can matter too, such as fees and commissions eating into the portfolio. So it is important to choose carefully when selecting a share-dealing account, Stocks and Shares ISA or trading app.
Here’s a share I recently bought for the long term
One share I added to my portfolio recently has promising long-term prospects, I reckon.
It is consumer goods maker Reckitt Benckiser (LSE: RKT). Dividends are never guaranteed at any firm, but Reckitt’s cash generative business looks promising in terms of keeping its dividend well-funded. It currently offers a juicy 4.7% dividend yield.
The share price in recent years has done poorly. In fact, it is down 26% just since the start of this year. The Middle East conflict threatens to push up the cost of making and shipping household products, posing a risk to profit margins. Reckitt also faces ongoing risks from historical product liability lawsuits.
Still, that fall has pushed the Reckitt share price down to just 9 times earnings. That was attractive enough for me to start buying shares in the Dettol maker.
I plan to hold them for the long term as I think its portfolio of strong brands and proven business model offer ongoing opportunity not properly reflected in today’s share price.
Should you invest £5,000 in Reckitt Benckiser Group Plc 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 Reckitt Benckiser Group Plc made the list?
Christopher Ruane owns shares in Reckitt Benckiser Group.
