A lot of people imagine starting to invest involves having a lot of money. But that is simply not true.
But how much would I need? For example, if I had never invested in shares before and had a spare £100, might it be worth my time and effort to do so?
Minimising fees and costs
One consideration would be the percentage of my capital that might be swallowed up by things like commissions and dealing fees. These are often expressed as a percentage of the value of the transaction. But the sting in the tail is that they also frequently have a minimum amount.
For example, 1% of a £1,000 trade with a £10 minimum charge would be £10. But 1% of a £100 trade with a £10 minimum charge would be… £10!
Immediately, in such an example, 10% of my capital would have gone.
Does that mean I would not start investing with £100? No. But I would definitely take time to find the share-dealing account or Stocks and Shares ISA I felt suited my personal situation best.
Reducing risk through diversification
No matter how good a company may seem (or actually be), the unexpected can happen. That is why smart investors never put all their eggs in one basket.
In theory, diversification is a sound idea – but would it also be a practical one if I had just £100 to start investing? I think so.
Specifically, I would consider investing not in individual shares but in an investment trust. Such trusts (City of London is one of many examples) are pooled funds that buy stakes in dozens of different companies.
By buying a share in such an investment trust, I could gain exposure to a diversified set of businesses without needing to buy all those separate shares myself.
Foundation for future wealth-building
Could I get rich by putting £100 into the stock market? It seems unlikely, unless I choose exceptionally good shares and take a very long-term perspective.
But remember – that £100 is how I would start investing. I would then aim to build on that foundation, adding more money when I was able to do so.
Meanwhile, that £100 could still give me some tangible results. Hopefully, I would start to earn some dividend income from it, even if it was just a few pounds a year, as well as having the potential for share price gain.
I would probably also learn about investing. Having even a little flesh in the game is a very different way to learn than simply studying the theory.
I could also learn from my errors as well as my successes. Hopefully, that could help me improve my investment performance over time as I invested growing sums in the stock market.
