It does not take a fortune to get into the stock market. In fact it is easily possible to start buying shares with less than £1,000.
I actually see some advantages to doing that versus saving up a much bigger amount to get going.
For example, it would let someone get into market sooner rather than having to sit on the sidelines for years, watching potential bargains pass them by.
Another benefit is that it should mean any beginners’ mistakes are less financially painful than if investing with a far bigger sum.
Of course, no-one likes to imagine they will lose money with a rookie error. But successful investing is all about being realistic, including with yourself. Very few (if any) investors hit the ground running and never make a mistake.
Still, if an investor with less than £1,000 wanted to start investing for the first time, here are three watchouts I think could potentially help them improve their chance of building wealth.
1. Be clear about your objectives
Some people want to get into the next big growth story. Others start buying shares because they are excited by the passive income potential of dividends.
In fact, people invest for all sorts of reasons and using all sorts of techniques.
One thing that can help (as in general in life) is having a clear objective.
This helps with assessing opportunities as they pop up. Otherwise the risk is that someone may just start buying shares without really knowing why. That is closer to speculating than investing.
2. Charts are useful – but not in isolation
A common mistake people make when they start investing is confusing what makes a good business with what makes a good investment.
They can be very different.
Take Aston Martin (LSE: AML) for example.
It sells very expensive cars to often very rich people. It also has a range of iconic models. If someone wants to own the famous DB5 used by James Bond, they will have to buy an Aston Martin.
Luxury carmakers tend to charge top dollar for their vehicles. But they can also charge steep prices on replacement parts during a vehicle’s lifetime. If someone drives like Bond, they may need to get their car repaired often. That all sounds lucrative.
Now, look at the Aston Martin share price chart. What do you see?
Some people will notice how far the share price has fallen and presume that Aston Martin shares are now a bargain.
But it is impossible – always – to know whether a share is good value or not just by looking at a price chart.
That judgment requires more detailed knowledge of a company’s business performance.
Aston Martin is a strong brand. But as its annual results revealed this week, it continues to burn cash in a way that would make even Bond blush. Sales volumes have been declining.
A share price chart can be useful – but never in isolation.
3. Trying to build wealth with low costs
Choosing the right shares to buy is important. So is how an investor buys and holds them.
Fees and other costs can eat into the financial returns.
That is why a savvy investor does not start buying shares without carefully selecting the right share dealing-account or Stocks and Shares ISA for their own needs.
