From the outside, this might look like a chaotic year in the stock markets – and a scary one to start buying shares. But the recent market volatility we have been seeing has had both bad and good points.
One of the good points is that it has made buying some shares in brilliant companies markedly cheaper. In some cases I would even say it is possible to pick up a bargain.
But where to start – and does it take a lot of money? The answer to the second question is no. It is possible to start buying shares on a very limited budget. Here’s how.
Getting ready to invest
First things first. It can take time to set up a way to buy, hold and sell shares and transfer money into it. With lots of options on the market, it pays to do some research and see what sounds most suitable.
So a first move even before someone is ready to start buying shares would be to compare some of the many share-dealing accounts, trading apps and Stocks and Shares ISAs that are available on the market.
Having chosen one, the money to be invested could then be transferred in.
Learning more about the market
It is alright to start with no knowledge – but it could be costly to start buying shares without understanding how the stock market works.
So I think it is important that someone takes some time before investing a penny to learn more about some of the key concepts involved. Such as how to diversify even on a small budget to trying to spot the difference between a real bargain share and what is known as a value trap.
Building up a portfolio
Next comes the chance to start buying shares and building up a portfolio. Each investor has their own knowledge, risk tolerance and objectives. So no two portfolios will be the same, even when investing under £500.
But a few things do apply across the board. For example, I think everyone should aim to be a good investor. Similarly, it makes sense to try and avoid some common beginner’s mistakes people make when they start buying shares.
Investing, one share at a time
One share I reckon new investors should consider is City of London Investment Trust (LSE: CTY).
An investment trust is a pooled investment, so by buying a share in it an investor effectively gets exposure to City of London’s diversified portfolio spanning dozens of different companies.
Those are mostly large, well-known UK companies. So in broad terms, City of London ought to do broadly in line with the stock market, though that it not guaranteed.
Taking the past five years as an example, City of London’s share price has grown 45%, while the flagship FTSE 100 index is up 46% during the period.
City of London has raised its dividend per share annually for almost six decades. Its current yield of 4.5% comfortably beats the FTSE 100 yield of 3.4%.
No dividend is ever guaranteed to last. Its heavy exposure to UK shares means that an economic downturn on these shores could eat into City of London’s profits.
Still, I expect its managers will aim to keep growing the dividend if at all possible.
