A lot of people start investing when the stock market is already riding high, hoping that it can keep moving higher and they will build wealth. But that can risk buying shares that are already overpriced.
By contrast, I think a stock market slump can be a good time to start investing, as some high-quality shares may be available at what later turn out to be bargain prices.
That can take nerves, as although a share may have tumbled in price already, it can keep falling further. But as a believer in long-term investing, I reckon this can potentially help an investor start building wealth, even when they have only a modest amount to invest.
Starting small makes sense
An alternative for a would-be investor is to wait until they have more money saved to invest. But that could mean sitting out of the stock market for years, potentially missing out on some great opportunities.
Starting investing on a smaller scale also means that any beginner’s mistakes will hopefully be less costly.
Hunting for value in a volatile market
Such mistakes can be made at any time. That includes during the sort of turbulent stock market we have seen lately.
For example, a company can be what is known as a value trap. Its share price may look cheap compared to its historic business performance. But that performance may be at an end, meaning that although the share price has fallen a long way, it will not recover.
Fortunately, although a stock market correction can throw up some value traps, it may also offer some genuine bargains.
Quality on sale
For example, one share I think investors should consider amid the current turbulence is ITV (LSE: ITV). The share price has struggled over the past five years as investors fret about the impact of digital broadcasting on the company. Over the past five years, the ITV share price has fallen 9%.
But its legacy broadcasting business continues to do well even though audiences are in long-term decline. ITV has also put a lot of effort over the past several years into expanding its digital operations. That could mean that, over the long term, it can continue to generate sizeable revenues from advertising.
On top of that, the company has a studios business that rents out production facilities and expertise. So while rivals like Netflix can pose a risk to revenues in one part of ITV’s business, they can actually be a boost to another part.
ITV has a dividend yield of 7.2%. If it maintains this (something that is never guaranteed), it means £100 invested today ought to generate £7.20 of passive income annually.
Seizing the moment
No matter how much is invested, risk management is important. I think someone who starts investing even with £500 ought to diversify across several different shares, at least.
Fees and costs can also eat into returns, so it pays to spend time choosing the most suitable share-dealing account or Stocks and Shares ISA.
