Image source: Getty Images
Getting into the stock market can seem exciting but also a bit scary and potentially expensive. In reality, though, it is possible to start buying shares for just a few pounds a week.
Like many investors, I try to contribute money to my investment pot regularly but how much can vary with circumstances. So sometimes I put in a very modest amount.
Using £10 a week as an example, here is the approach an investor could take.
Getting ready to invest
One cannot start driving without having something to drive. Similarly, to start buying shares requires having some practical way to purchase them.
There are lots of options available. For example, there are different sorts of ISAs and many different options. It is the same for share-dealing accounts, trading apps, and SIPPs.
With so many options I think it makes sense for investors to take some time to try and choose the one that suits them best.
Making regular contributions
A tenner a week might not seem like much of a foundation for investing.
In fact, I see some advantages to starting investing with less not more. It can be quicker than waiting to save up large amounts – and it means beginners’ mistakes will hopefully be less financially painful.
Plus, £10 a week can add up. Over time, even if an investor just sticks to that rather than raising their contributions, they will be investing thousands of pounds.
Investing £10 each week at a compound annual growth rate (CAGR) of 12% should mean that after a decade a portfolio will be worth over £9,600. Not bad!
Finding the right shares to buy
Still, while a 12% CAGR may not sound much it is actually quite ambitious.
Some shares will disappoint (which is why a smart investor keeps their portfolio diversified at all times). While some years may see strong performance, others could see tough market conditions.
But as a long-term investor, when I start buying shares in a company it is because I think that business has a competitive advantage in a market I expect to benefit from strong long-term customer demand. If I buy into great companies when their share prices are attractive, hopefully my portfolio can perform well.
As an example, one share I think has strong long-term potential is JD Sports (LSE: JD). That is why I see it as a share investors should consider buying.
The dividend yield is currently under 1%, so the appeal here is primarily potential share price growth rather than income as the key driver for investment return.
Over five years, though, the JD Sports share price has plummeted 36%. Ouch!
Forward focus
But it is important to remember that past performance is not necessarily a guide to what may happen in future.
The share price fall reflects a number of risks, including weak consumer spending and the potential for the company to overstretch itself with an aggressive shop opening programme and deals like a large US acquisition this year.
But I see such moves as potential growth drivers. JD has a proven, highly profitable business model. Customer demand remains high, its global footprint gives it economies of scale, and it has shown itself expert at juggling online and offline retail operations.
