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With only a few pounds to spare each day, getting into the stock market may not be everyone’s priority. But one of the attractions can be that, while a coffee or pint once consumed is gone forever, money invested in shares could potentially still be building wealth decades from now. Believe it or not, a fiver a day is enough money to start buying shares.
In a year, that would add up to over £1,800 to invest. Here are some things to consider when thinking about doing just that.
Good investing principles count, whatever the amount
It may be surprising, but a lot of what applies when investing millions of pounds at once is also relevant when dealing with much, much smaller sums.
For example, when people start buying shares they sometimes put money into something they do not understand, just because its price has been going up regularly. I see that as speculating, not investing.
To me, investing is about carefully researching familiar companies and putting money into them when they look cheap relative to their long-term prospects. To do that, it helps to have a handle on basic but important concepts such as how to value shares.
One way in which investing small amounts can be different to bigger sums is minimising costs and fees. Some have a minimum amount, so can take a proportionately bigger chunk out of modest-sized investments than large ones.
So before starting to buy shares, it is important to weigh up the different options when it comes to share-dealing accounts, Stocks and Shares ISAs and share-dealing apps.
Building a shares portfolio from scratch
Another important principle of investing, at any level, is diversifying across different companies. With over £1,800 a year to invest, someone tucking away a fiver a day could comfortably do that.
When setting up a share portfolio, I find it helpful to think about objectives. For example, some investors want to focus on earning passive income through dividends, others are focused on growth and some want to target both.
One mistake people sometimes make when they start buying shares (and in some cases long beyond) is trading too often. That typically involves fees and commissions each time. Long-term investment built on a ‘buy and hold’ strategy can reduce such fees, allowing investors time for a company to prove its worth.
One to watch?
As an example, one share I am holding with a long-term perspective is Logistics Development Group (LSE: LDG). Its shares sell for pennies, but that alone does not necessarily make them good value. As I said, getting to grips with valuation is important before starting buying shares!
In this case though, I think the share is good value, which is why I have added it to my portfolio. It trades for under 15p but last month the company’s net asset value per share was over 26p.
It owns stakes in a number of private companies. They can be hard to sell, so a net asset value is not the same as cash in the bank.
Still, Logistics Development Group has proven its ability to create shareholder value and I am excited by its recent investment in the UK’s largest independent parcel delivery network. I see it as a share for investors to consider.
