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How much does someone need before they can get serious about scouring the stock market on the hunt for shares to buy?
It is a good question. Many people hold off from investing in the stock market because they think they need a certain amount to buy shares.
Pay close attention to costs and charges!
There is some logic to that. For example, Hargreaves Lansdown has a default charge of £11.95 per trade online. That can fall for someone who executes 10 or more trades in a single month, but that seems irrelevant for a long-term investor with only £100 to spare.
By phone or post, that minimum dealing charge goes up to £20. So an investor with £100 could be looking at losing a fifth of that in charges for a single deal!
The FTSE 100 stockbroker announced last week it would reduce some of those charges.
While it trumpeted cuts in the online cost, the cost to buy stock by phone or post will move to a fixed £29. That may be good news for investors putting a lot of money to work, but for someone with £100 it compares woefully even with the already punishing current charge.
I use Hargeaves Lansdown as an example, but the point holds for all stockbrokers. Dealing costs, commissions, administration costs, and annual fees can add up. Minimum charges can make it uneconomic to invest with just £100 using some platforms.
But fortunately, there is a wide range of Stocks and Shares ISAs available, offering a multitude of cost structures.
So even with just £100, it can be worth looking for shares to buy as long as you are willing to do the legwork of finding the ISA that suits your own needs best.
Starting small but thinking big
In fact I see some advantages for someone to start investing on a small scale.
It can allow someone to get going quicker, rather than sitting out of the stock market for years or even decades while they save up a large pot of money to buy shares.
It can also make beginners’ mistakes less costly.
Finding the right shares
Still, one challenge is diversification.
Given the sort of minimum charges I mentioned above, it can be difficult to spread £100 over a few different shares cost effectively. But every good investor knows diversification is an important risk management strategy.
One share I think investors should consider itself offers some diversification thanks to its holdings in dozens of British businesses.
It is an investment trust, a type of collective vehicle whose own shares are traded on the stock market. Specifically, the City of London Investment Trust (LSE: CTY).
It has been on the go for over 160 years but its share price hit an all-time high just today (3 February). The trust’s dividend yield of 3.9% is above the FTSE 100 average of 2.9%.
Not only that, but City of London has raised its dividend per share annually for decades.
Whether it keeps doing so will depend on its portfolio performance. No dividend is ever guaranteed.
City of London’s UK focus means any downturn in the British economy is a risk to its performance.
But, more positively, it also gives it exposure to lots of well-run blue-chip businesses.
