Does it take a lot of money to start investing in the stock market? The answer to this question is a simple one: no, it does not.
But investing with, say, £80 is different to investing with £80,000 (although starting with one could potentially put someone on a journey to the other, as I explain below!).
Beginning with baby steps
For example, a key risk management principle when investing is what is called diversification.
That means spreading risk – and that is easier to do with more money than when investing less than £100.
Still, there can be some simple ways to diversify even on a tight budget, such as buying shares in an investment trust that is itself diversified across a few different companies.
Meanwhile, another possible disadvantage of beginning on a modest scale is the impact of minimum fees, commissions and charges.
So before someone starts investing, it makes sense to compare the different cost structures and features when choosing a share-dealing account, Stocks and Shares ISA or share-dealing app.
Setting realistic expectations
Is it even worth beginning with £80? How much an investment earns (or loses) over time depends on how it performs. But, even with a long-term approach to investing, £80 may seem unlikely to help build significant wealth.
Say it compounded at 10% annually for 50 years. That one-off £80 investment would then be worth £455k!
A 10% compound annual growth rate over decades is harder to achieve than it may sound. But the point is that even small investments can grow substantially over time.
I think the bigger prize though, is to see the £80 just as the beginning. Someone could start investing with a long-term mindset and lofty ambition. By regularly contributing more money over time, they would improve their chance of building serious wealth.
Getting started
Where to begin though? Having chosen a share-dealing account to use and put the £80 into it, someone then needs to decide which share (or shares) to buy to start investing.
One share I think is worth considering is the Scottish Mortgage Investment Trust (LSE: SMT).
Over the short- to medium-term, the trust’s portfolio concentration in tech companies like Nvidia is a risk. If the tech market cools and valuations fall, that could hurt the trust’s portfolio value. Scottish Mortgage is no stranger to market volatility though. It last cut its dividend per share shortly after the 1929 Wall Street crash.
The current 0.4% dividend yield is low. Over the long term, the tech focus could be a risk: the share price has only moved up 5% over five years. That includes a lot of volatility though.
At the current price, I see this as a potential long-term bargain to think about, given the trust manager’s clear focus and proven capability to identify compelling tech growth stories at an early stage.
