Start buying shares with £10 a week? Here’s how!

Our writer shows how an investor could start buying shares on a limited budget using the same techniques he has been honing over years of stock market investing.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

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Getting into the stock market can seem exciting but also a bit scary and potentially expensive. In reality, though, it is possible to start buying shares for just a few pounds a week.

Like many investors, I try to contribute money to my investment pot regularly but how much can vary with circumstances. So sometimes I put in a very modest amount.

Using £10 a week as an example, here is the approach an investor could take.

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Getting ready to invest

One cannot start driving without having something to drive. Similarly, to start buying shares requires having some practical way to purchase them.

There are lots of options available. For example, there are different sorts of ISAs and many different options. It is the same for share-dealing accounts, trading apps, and SIPPs.

With so many options I think it makes sense for investors to take some time to try and choose the one that suits them best.

Making regular contributions

A tenner a week might not seem like much of a foundation for investing.

In fact, I see some advantages to starting investing with less not more. It can be quicker than waiting to save up large amounts – and it means beginners’ mistakes will hopefully be less financially painful.

Plus, £10 a week can add up. Over time, even if an investor just sticks to that rather than raising their contributions, they will be investing thousands of pounds.

Investing £10 each week at a compound annual growth rate (CAGR) of 12% should mean that after a decade a portfolio will be worth over £9,600. Not bad!

Finding the right shares to buy

Still, while a 12% CAGR may not sound much it is actually quite ambitious.

Some shares will disappoint (which is why a smart investor keeps their portfolio diversified at all times). While some years may see strong performance, others could see tough market conditions.

But as a long-term investor, when I start buying shares in a company it is because I think that business has a competitive advantage in a market I expect to benefit from strong long-term customer demand. If I buy into great companies when their share prices are attractive, hopefully my portfolio can perform well.

As an example, one share I think has strong long-term potential is JD Sports (LSE: JD). That is why I see it as a share investors should consider buying.

The dividend yield is currently under 1%, so the appeal here is primarily potential share price growth rather than income as the key driver for investment return.

Over five years, though, the JD Sports share price has plummeted 36%. Ouch!

Created with Highcharts 11.4.3JD Sports Fashion PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Forward focus

But it is important to remember that past performance is not necessarily a guide to what may happen in future.

The share price fall reflects a number of risks, including weak consumer spending and the potential for the company to overstretch itself with an aggressive shop opening programme and deals like a large US acquisition this year.

But I see such moves as potential growth drivers. JD has a proven, highly profitable business model. Customer demand remains high, its global footprint gives it economies of scale, and it has shown itself expert at juggling online and offline retail operations.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in JD Sports Fashion. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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