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The idea of getting into the stock market can make some people both excited and worried. They are excited about the prospect of trying to build wealth by investing in well-known businesses. But they may be scared that it takes more money than they have to start investing.
I always think it is a bad idea to invest with money that you do not have and can spare. But the good news is that it does not necessarily require large sums to start buying shares.
Taking the slow and steady approach
For example, consider a new investor who has a spare £2.80 per day.
In many places, that would not even buy them a sandwich or cup of coffee, let alone a pint.
But over the course of one year, putting aside £2.80 per day would give them an investment pot of over £1,000. £1,022, to be precise.
That is just one year: keeping the habit up day in and day out could let the investor grow their investable capital substantially over time, even before they think about increasing their daily contribution from £2.80.
This sort of steady, long-term investing might sound like small beer at first. But, with the right mindset, patience, and perseverance, it can potentially help lay the foundation for a surprisingly large stock market portfolio over the long term.
Finding a way to invest
That presumes, of course, that someone has a way to invest, at a practical level.
So a useful first step would be to set up a share-dealing account, Stocks and Shares ISA, or dealing app. That does not need to take long – in many cases it could be done this week!
But different alternatives offer a range of fees, charges, and so forth. With under £3 a week, minimum costs could soon stack up, so it pays to take some time and weigh the options. Different investors each have their own priorities.
Hacking through the thickets in the stock market jungle
With thousands of shares to choose from, something that can make some people decide not to start investing is the overwhelming choice.
Personally, I think it can be more than rewarding enough to justify sifting through lots of individual shares as one starts to build a portfolio.
But an alternative can be to invest in a pooled investment fund, such as an investment trust. One I think investors should consider is the City of London Investment Trust (LSE: CTY).
Its track record of annual growth in its dividend per share stretches back more than half a century. That is impressive, but past performance is never necessarily an indication of what to expect in future – and no dividend is ever guaranteed to last.
But with its focus squarely on an actively selected group of UK blue-chip shares, I see City of London as a rough proxy for how the top flight of the London market performs. It has grown 60% in the past five years, while the FTSE 100 index of blue-chip shares is up 59% across the same period.
That brings an obvious risk: if the sluggish UK economy goes into reverse, it could hurt FTSE 100 share prices – and likely City of London too.
But I believe the trust, with its relatively conservative approach to share picking and a 4.3% dividend yield, merits consideration.
