Does it take a lot of money to start investing in the stock market? Not necessarily. In fact, even a few hundred pounds is enough to start buying shares.
Here’s how.
Some pros of starting on a small scale
Not only is it possible to start buying shares with a fairly small sum of money, I actually see some possible advantages to doing so.
One is that it means someone can get going in the market sooner.
Another is that putting less money in to start means any beginner’s mistakes will hopefully be smaller.
Set up a way to buy shares
Before someone can start investing, they need a way to put their money into the market and buy shares.
Different investors each have their own needs and objectives, so it pays to consider the many different choices available on the market. That might be in the form of a share-dealing account, Stocks and Shares ISA, or trading app.
Think about what sort of investor to be
Learning how the stock market works in detail can take many years – and, personally, I think some of the best lessons come from personal experience. But it is important to get to grips with at least some of the basics before you start investing.
You also need to consider what sort of investor you would like to be. What is right for one might not be right for another, as each of us has different financial situations and goals.
It is important to think about potential risks, not just rewards. So, for example, even with just around £300, a smart investor will diversify their portfolio from the day they start investing.
One share to consider
One way to do that could be to split the money across a couple of different shares. Another might be to put it into share of an investment trust that itself owns a diversified portfolio of shares.
As an example, one investment trust I think people should consider is Scottish Mortgage Investment Trust (LSE: SMT).
The trust has had a rocky few years with some significant price swings. Over the long term, though, it has performed well. The share price is up 23% over five years.
The company’s dividend yield is a modest 0.4%, but it is worth noting that the trust has not cut its dividend per share since the time of the Great Depression.
Past performance is not necessarily an indicator of what will happen in future. Here, I feel upbeat about Scottish Mortgage’s prospects. Its focus on investing in digital companies with promising business models could turn out to be highly lucrative.
It has scored notable successes in the past, for example with an early stake in Tesla. But the tech-heavy focus of Scottish Mortgage’s portfolio also brings risks. As we have already seen, a downturn in tech stocks can hurt the trust’s share price.
From a long-term perspective, though, I see it as a share investors should consider as they start investing – or at any point in their journey.
