One common misconception people have about investing in the stock market is that it takes a lot of money to do so. In fact, it is possible to start buying shares with just a few hundred pounds.
Some pros and cons of starting small
I see some possible advantages to doing so compared to saving a much bigger sum. For one thing it can mean starting sooner. It can be annoying having to sit out of the market and watching great opportunities disappear while saving funds to invest.
Another possible advantage is that any beginner’s mistakes will hopefully be less costly than investing a bigger sum.
But there are some potential downsides to starting on a small scale too. For example, sometimes fees and charges for trading shares have a minimum. So if someone starts buying shares with small sums, they could pay proportionately more than someone putting in a bigger amount of money.
Making smart choices from day one
That helps illustrate why it makes sense to take time and effort when selecting a share-dealing account or Stocks and Shares ISA. With lots of choices on the market, it can be rewarding to choose one that best suits a particular investor’s position.
Allocating funds can be tricky
Another issue that can pop up when investing small sums is how to split them. After all, diversification is a simple but important risk management strategy no matter how much is invested.
But if someone starts buying shares on a limited budget this can require careful thought. Diversifying with £5,000, for example, could simply mean putting £1,000 into each of a handful of different shares.
With £300 though, that could be harder. Putting £60 each into five shares might not be practical. A single share of Nvidia, for example, costs around £85. Plus on such small sums, commissions might soon add up.
One potential solution could be for an investor to buy shares in an investment trust that holds a diversified stock portfolio.
Finding shares to buy
One such trust investors could consider is the Scottish Mortgage Investment Trust (LSE: SMT). In fact, it would offer exposure to Nvidia. Along with rival chipmakers ASML and TSMC, it is one of the trust’s top 10 holdings.
The biggest is SpaceX. As an unlisted company, a private individual with a few hundred pounds could not start buying shares in the rocket company. But Scottish Mortgage has the financial heft to do so.
Its portfolio offers exposure to a wide range of chosen shares, with a heavy emphasis on growth. That helps explain its recent storming performance. The share price is up 24% over the past year and 72% over five years.
A downside of course is that as some growth shares look potentially overvalued, any downturn among large US growth stocks could hurt the valuation of Scottish Mortgage.
