At this time of year, the annual ISA contribution deadline tends to attract a lot of attention. For someone who wants to start investing for the first time, though, that might seem like a distraction. They have more basic questions.
So, say someone had a bit under £400 and wanted to start investing before April. That basically means over the next couple of days!
Could they do it – and how?
Investing on a tight budget
£380 is certainly enough to begin buying shares.
In fact, I think it can be better to start investing on a small scale than waiting for a long time to save up lots of money to do it.
But one thing to watch out for is the impact of dealing fees and costs. Sometimes they have a minimum amount. When investing a modest amount, that can have a disproportionate effect.
So it pays to shop around when looking for a share-dealing account or trading app.
A Stocks and Shares ISA needn’t take £20,000
Or, come to that, a Stocks and Shares ISA.
A lot of discussion about them focuses on the idea of investing £20k, because that is the standard annual contribution allowance.
But that does not mean an ISA might not also be useful for someone who wants to start investing with a few hundred pounds.
With this year’s allowance deadline fast approaching – it falls a week today, on 5 April – now could be the perfect time to think about that.
Learning about the market and setting an approach
A new investor should also get their head around some basic but important stock market concepts, like how to diversify a portfolio and why valuation matters when considering shares.
I think one mistake some people make when they start investing is not having a plan. The plan can change over time, but I think it is important at least to have one as a starting point.
For example, is the objective capital growth, dividend income, or both? What risk tolerance is the investor happy with? How will they decide not just when to buy a share but also when to sell it?
One share to consider
As a new investor, It can be difficult to stay grounded when setting expectations. But I think it is helpful to be modest and not too ambitious, hoping for a decent return over the long term rather than a quick, spectacular return.
No share is guaranteed to perform, of course. But one of the reasons I think City of London Investment Trust (LSE: CTY) merits consideration by investors is the fact that the pooled investment vehicle aims to own a carefully selected portfolio of blue-chip British shares.
That means that, over time, it ought to perform broadly in line with the UK economy. Of course, that also brings the risk that when the British economy performs weakly or UK stock market tumbles, the share could lose value.
Another thing I like about City of London is its commitment to dividends.
Again, no company’s dividend is ever guaranteed to last. But the shareholder payout is clearly a priority for the investment trust’s directors. Indeed, the dividend per share has grown each year since the mid-1960s.
