One myth about the stock market is that it takes a lot of money for someone to start buying shares. In fact, it is possible to do so with just a few hundred pounds.
I actually think there are good reasons to consider doing so. One is that it means someone can be in the market sooner, rather than waiting years or perhaps even decades before they have saved up a large tum to get going. From the perspective of a long-term investor, a longer timeframe can offer a potentially sizeable advantage.
Most people make some beginner’s mistakes in the market, realistically – and starting on a small scale can also mean that they are less costly.
What it takes to invest
The ‘why’ may now be clearer – but what about the ‘how’?
To start buying shares requires a practical means of doing so. So a new investor should consider how to put the £500 into the market. There are lots of options when it comes to share-dealing accounts, Stocks and Shares ISAs, and trading apps. Each investor has their own circumstances and so it pays to make a considered choice.
Learning how the stock market works in detail can take years. But upfront an investor ought at least to come to grips with important concepts, from valuing shares to managing risks. For example, even with £500 it is possible to diversify across different shares.
There is a difference between a good business and a good investment, so just putting money into successful businesses is not necessarily a smart way to invest.
Finding shares to buy
That helps explain why I do not own shares like Apple or Nvidia at the moment. I regard both as solid businesses, but do not think their current share prices offer me a compelling investment opportunity.
What sorts of shares do I think someone should consider when they want to start investing, then?
One mistake many people make is being too greedy. I understand – people start buying shares because they want to build wealth. But, in the stock market as elsewhere in life, opportunities that look too good to be true usually are.
Starting with a well-known, proven business at a decent price could be attractive. That is why I think new investors should consider baker Greggs (LSE: GRG).
The business is easy to understand – indeed, many of us are quite familiar with it from shopping there. Greggs has a proven business model and it already benefits from economies of scale that I think could grow if it expands its footprint. There are lots of opportunities to do that, as the company itself has recognized.
Customer demand is high and resilient. While the industry is not glamorous, Greggs makes money thanks to its strong brand, huge shop network, and unique twists on well-known products.
But investors have been worrying about profitability, with risks like a weak economy hurting sales and higher employment costs eating into profits. The result is that it is 31% cheaper to buy a Greggs share today than it was a year ago.
I see that as an opportunity. Indeed, I started buying Greggs shares for my portfolio in recent months. A 3.6% dividend yield is the icing on the cake.
