Getting into the stock market does not necessarily require a large amount of money.
It can basically be tailored to suit the available cloth. Someone with a spare £100k could start investing – and so could someone with a few pounds a week in spare cash.
Here is what that could look like, for someone who wants to start buying shares with £50 each week.
The long-term benefit of drip feeding
£50 a week might not sound like the basis of a potential fortune. However, long-term investing can be surprisingly powerful.
Over time, the regular contribution of even a modest sum can add up. On top of that, prior contributions will have funded investments that can hopefully keep building wealth in the background.
For example, putting £50 a week into the market and growing the share portfolio value at 5% a year would mean that after five years, it ought already to be worth nearly £14,700. After a decade, over £33k and after 25 years, almost £127k.
That is assuming annual growth that I think is modest. With any dividends and share price growth taken into account, albeit set against share price falls, I think an investor who starts buying a carefully chosen group of blue-chip shares and sticks to that approach could realistically aim for a higher compound annual growth rate than 5%.
Getting ready to invest
While it may not take a lot of money to start buying shares, what about knowledge?
The stock market can be an exciting but also a risky place, with professional investors putting large sums of money to work.
Before investing, I think someone ought to understand key ideas like how to value shares and how to manage their risks as part of learning how to be a good investor.
It is also necessary to have some actual way to start buying shares. So another important step is setting up a Stocks and Shares ISA, share-dealing account, trading app, or other way to buy and hold shares.
On the hunt for brilliant companies at attractive prices
Then comes the stage of actually finding shares to buy.
One share I think investors should consider is FTSE 100 financial services company Legal & General (LSE: LGEN).
The storied financial services provider has a long history and well-established brand. But it has continued to evolve.
In recent years it has focused its strategy more on the retirement-linked market. I see that as a smart move because that is a large addressable market and is likely to stay that way.
It has also agreed to offload a big US business. That frees up a lot of cash for dividends and share buybacks. But it does also raise the risk of smaller profits due to the reduced size of the overall business.
Another risk I see is turbulent stock markets leading investors to withdraw funds from Legal & General’s products, hurting profits.
Over the long run, though, I regard it as a company with considerable strengths. I also like its 8.9% dividend yield.
