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What does it take to get into the stock market? Some people want to start buying shares but keep putting it off because they think it takes a lot of money.
In fact, not only is it possible to get investing on a tight budget, but I think it has some advantages compared to waiting for a bigger pot before one gets going. One of them is that, hopefully, any beginners’ mistakes will be less financially painful.
If I was in the shoes of a friend that had a spare fiver a day and wanted to start buying shares, this is what I would suggest they consider doing.
Getting the mechanics of investing in place
My first move would be to make sure I had a way to invest!
So I would set up a share-dealing account or Stocks and Shares ISA, then start putting my £5 a day into it.
Focus on your objectives
That money would soon start to add up.
That £5 a day may not sound like much. But in a year that adds up to £1,825 – and in 10 years, over £18,000. As a long-term investor, that is music to my ears.
But money piling up is not the same as putting it to work. I want to buy shares, after all. But before I did that, I would take some time to decide what my objectives in the stock market are.
Some investors focus on buying into companies they think have outstanding growth prospects. Others are more focussed on dividends. Some juggle both.
Buy and hold
Next, I would start buying shares if I could find what I saw as great businesses selling at attractive prices.
Note that I use the plural. It can be tempting as a novice investor to zoom in on one business that looks very tasty.
But diversifying your portfolio is an important risk management tool – and I would apply it from day one.
As an investor, not a trader, I would not buy shares hoping to sell them at a profit shortly afterwards. Rather, I would buy a stake in companies I planned to hold for years.
Looking for shares to buy
What sort of shares would I start buying?
As I mentioned above, my focus would be on buying into what I see as great businesses selling at attractive share prices.
As an example, this year I bought shares in Filtronic (LSE: FTC), which I see as a share investors should consider buying.
The business is still fairly small. But I reckon it has a lot going for it. SpaceX is a repeat customer and, as it continues to expand its satellite network, I am hopeful that the US space company may send more orders Filtronic’s way.
Not only that, but hopefully the fact that SpaceX has bought multiple times from Filtronic will help it attract new customers.
Of course, over-reliance on one buyer can be a bad thing. The Filtronic share price has more than quadrupled over the past year. I think that is largely due to the SpaceX sales. I see a risk that, if Spacex stops buying from the company, its shares could tumble.
But I reckon its specialist technological capabilities give Filtronic a strong competitive advantage. That is why I am happy to own this share.
