How much does it take to start investing in the stock market?
Many people have wrestled with that question over the years – and they have not all ended up with the same answer!
Fortunately, the answer is basically not that much, in the grand scheme of things. A few hundred pounds would be ample.
Starting on a small scale and learning
In fact, I see some advantages to beginning modestly.
It can be quicker to get going if one does not need to spend years saving up the required cash, while life throws up other needs that require money.
Also, while everyone likes to think that they will start investing with a Midas touch, the reality is that there is a learning curve. Starting on a relatively small scale means that any beginner’s mistakes can be less costly than if more was at stake.
Choosing the right way to invest
Still, there can be some disadvantages too.
One is that costs such as platform fees, dealing commissions, and charges can eat into the money invested – especially if there is a minimum amount.
So it is important to look around when trying to find the most suitable share-dealing account, Stocks and Shares ISA, or trading app.
Learning some basic but important lessons
Even on a small scale, the basics of investing apply.
For example, no matter how good a company may be, it can run into unforeseen difficulties. So it is important to spread a portfolio across diverse shares. That can be harder to do cost-effectively when investing several hundred pounds than with a larger amount, but it is possible.
Also, valuation matters – not just finding good businesses. Long-term returns in investing are not just driven by the strength of the business, but also what you paid for your stake in it.
Following some Warren Buffett wisdom
I think many people could do worse than to start investing following some precepts of stock market legend Warren Buffett.
For example, he advocates sticking to businesses (and business areas) you understand, not being greedy, and building in a margin of safety when assessing how attractive a share price is.
Buffett also reckons many people should look no further than an index tracker when they start investing, but personally I think there can be merit in looking at individual shares.
One share I think is worth considering is FTSE 100 asset manager M&G (LSE: MNG).
This has some attributes of a classic Buffett approach. The market for asset management is huge and likely to stay that way. M&G has competitive advantages that help give it what Buffett calls a “moat“. Those include its strong brand, multinational operations, and a customer base in the millions.
I also find its dividend yield attractive. At 7%, it means someone buying M&G shares today will hopefully earn £7 per year for each £100 invested.
Dividends are never guaranteed at any firm, though. M&G faces risks and one is that choppy financial markets like we have seen lately could lead some investors to pull more money from its funds than they put in, hurting earnings.
Over the long term, however, I think this income share has ongoing potential.
