One of the misconceptions some people have about the stock market is that it is only for the rich. In fact, it is possible to start buying shares with just a few pounds.
Here is how someone with no stock market experience could start investing with a spare £10 a week.
Get ready to invest
Before buying any shares, it is important to get set up in the right way. Partly that means having a way to invest. So an investor should set up something like a share-dealing account, Stocks and Shares ISA or trading app. That way they can put the £10 into it each week.
But I think a new investor also needs to set themselves up in terms of thinking about what they are doing. Learning how the market works can take a lifetime, but it is important to have at least a basic grasp of important concepts like valuation and diversification before you start buying shares.
Find shares to buy
Shares sell for different prices – some for pennies, while others are priced in the hundreds of pounds or more. A tenner a week adds up to around £520 a year, so in the beginning only some shares will be within affordable reach.
One option when investing small sums is to buy shares in a pooled investment, such as an investment trust. Such trusts typically own a diversified portfolio of shares themselves. So investing in them can be a simple way for an investor to get a certain level of diversification even on a limited budget.
A share to consider
If I was to start buying shares for the first time, I would be looking for the same thing I am after decades in the stock market: buying into great businesses at attractive prices.
Sometimes that might be because I hope a share price can grow. Other opportunities appeal to me because of the passive income streams I could earn from dividends. Some shares offer both growth and income potential.
One share I think investors should consider is construction equipment rental group Ashtead (LSE: AHT).
Over the past five years, its share price has grown 79%. Despite that, it currently sells for around 16 times earnings. Such a price-to-earnings ratio is one way investors value shares. I think 16 is decent value for as high-quality a business as Ashtead.
It has a sizeable asset base primarily in the US and a large set of existing and returning customers. Its business model is proven and Ashtead is undergoing a strategic transformation to try and boost its performance even further.
The dividend yield is 2.3%, well below FTSE 100 peers, but I would be willing to accept that (I own Ashtead in my own portfolio) as I am hopeful that the share price may rise over time.
One reason it might not is a weak economy leading to a slowdown of construction projects Stateside. That could hurt both revenues and profits at Ashtead.
From a long-term perspective though, I think the stock is one for further research.
