Image source: Getty Images
Back at the start of the year, the Lloyds (LSE: LLOY) share price was in pennies. Lloyds shares still sell for pennies each – but they have got a lot closer to the pound mark since January!
In fact, the share price has moved up by 73% so far this year.
So, somebody who spent £55 back in January would now be sitting on a paper gain of around £40.
In absolute terms that might not sound huge. However, as a percentage gain from a blue-chip share in a mature industry in less than one year, I think it is excellent!
Not only that, but Lloyds shares currently pay dividends. The yield of 3.5% is above the FTSE 100 average – and someone buying back in January would be earning a higher yield, of around 6%.
Small-scale stock market investing can be worthwhile
Sometimes, investment can seem like something best left to the big boys.
But this example demonstrates that even investing on a small scale can sometimes produce significant results.
One challenge when it comes to investing a small amount – such as the £55 required back in January to purchase 100 Lloyds shares – is minimum commissions and fees.
While a percentage dealing charge may be low, if it comes with a minimum of say £10 or £15, that would eat a big chunk out of a £55 transaction. When the time comes to sell, a minimum charge could eat into any profits too.
I see that as a salient reminder of why savvy investors – whether they have £55 or £55,000 to invest – choose carefully when it comes to selecting a share dealing account, Stocks and Shares ISA, or trading app.
Have I missed the boat?
While that 73% share price gain – with dividends on top – sounds excellent to me, I did not invest in Lloyds at the start of the year.
In fact, I have been avoiding not only Lloyds shares but bank shares in general for a while. My concern has been that an uncertain economy could mean loan defaults rise, hurting profits.
While Lloyds has done well this year (and in recent years generally: it is up 179% on a five-year timeframe), the reality is that the share is still far below where it stood prior to the 2007 financial crisis.
Since then, some things have changed. Lessons have been learned that mean Lloyds and its rivals are now far healthier in many respects than they were back then.
Looking ahead
What has not changed is the fundamental nature of banking, which means it is fairly easy to make money as a bank when the economy does well – but can be very challenging once the wider financial environment sours.
So while I like Lloyds’ huge customer base and leading position in the UK mortgage market, I also reckon such strengths could turn into risks should wider financial markets enter a serious downturn.
That risk continues to concern me. I will therefore not be buying Lloyds shares.
