April sees a rush of people putting money into their Stocks and Shares ISA before the annual contribution deadline. But if I had never invested before and just had a few hundred pounds to invest, I would happily start buying shares now rather than waiting.
Here is why.
Longer timeline
Saving up until one has thousands of pounds to invest could take a long time. For some people, years or even decades pass and they never have as much as in their savings jar as they wished.
That is understandable. Life can throw up unexpected costs and sometimes they just keep on coming.
As an investor, though, time matters.
Part of the rationale for long-term investing is that by buying into quality companies at the right price then holding the stake for years, the shares can hopefully reflect the strong performance of the business.
On that basis, waiting too long to start buying shares can mean one does not have as long an investing timeframe to benefit from great choices.
Cheaper mistakes
The idea, of course, is that hopefully buying shares today could lead to future gain.
However, there is a learning curve in the stock market as elsewhere in life.
Some beginner’s mistakes are likely sooner or later. Investing with a few hundred pounds could make those mistakes less costly than if I waited until I had thousands of pounds to invest before I began investing.
Focussing the mind
Another benefit I see to getting started sooner rather than procrastinating is that having, say, £350 to invest would help me focus my mind more than having £35,000 to invest.
An important principle of risk management is diversification. That basically boils down to not putting all my eggs in one basket.
With tens of thousands of pounds to invest, I could spread the money across dozens of different shares if I so chose.
With £350, though, that is not practical.
Often a share purchase has a minimum fee or commission (depending on the ISA or share-dealing account I choose). Too many of them could eat badly into £350.
If I can only buy two or three different shares, I would be highly motivated to spend time doing the right research before I start buying.
Following the broader market
One choice could be buying shares in an investment trust like City of London (LSE: CTY).
An investment trust is a pooled investment. So by putting just one or two hundred pounds into shares of City of London, I would in turn be gaining indirect exposure to the dozens of different shares the trust owns.
Some such trusts simply track a popular index like the FTSE 100 but some, including the City of London, involve trust managers making active choices about what to buy.
One risk with that approach is if those choices turn our poorly. City of London is mostly focused on the UK market. A weak British economy could hurt stock market performance — and the trust’s. Indeed, its shares have fallen 3% in the past five years.
But it has been a solid dividend payer and offers a yield of 5%. It has raised its dividend annually for over half a century, although that is no guarantee of what lies ahead.
