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Many people like the idea of putting money into the stock market but never actually get around to doing it. There are various reasons why someone may not start buying shares even though they are thinking about doing it.
One is money. Life has lots of claims on people’s spare cash, so it can seem as if investing might be something better done later when hopefully there will be more spare money on hand.
In reality, though, expenses keep cropping up at every age – and, anyway, it does not necessarily require a lot of money to start buying shares. Starting with less can mean beginning sooner, letting a long-term investing approach operate over an even greater investing lifetime. It can also mean that any beginner’s mistakes are less costly.
In fact, it is possible to start buying shares with only a modest budget in the hundreds not thousands of pounds.
Setting up a share-dealing method
A useful, practical first move would be choosing a share-dealing account, trading app, or Stocks and Shares ISA and putting the £200 into it, ready to invest.
Then, before putting it to work, it would be helpful to start learning the basics of how the stock market works.
Concepts like valuing shares are hugely important. Getting into all the details could take a lifetime, but I think someone ought to have at least a rudimentary outline before they risk their money to start buying shares.
Finding shares to buy
While I see some possible advantages to starting in the stock market with a modest sum, there are potential disadvantages too.
One is that it can be harder to diversify effectively. Diversification basically means not putting all of your eggs in one basket. It can be hard spreading £200 across a few different shares and minimum dealing commissions and charges may start eating up a lot of it.
One approach can be investing in shares of an investment trust. That is a pooled investment that in turn typically owns shares in a variety of companies, so it can offer shareholders a form of diversification.
One investment trust share I think investors should consider is Scottish Mortgage Investment Trust (LSE: SMT).
The company has a long history – indeed, it has not cut its annual dividend per share since the Great Depression – but that does not mean it has not kept up with the times.
In fact, it is arguably ahead of the times, as in recent years its strategy has been to invest in growth companies it thinks can benefit from shifts like the move to digitalization. It was an early investor in Tesla and owns stakes in companies like Wise.
That strategy carries risks, especially if a tech downturn hurts valuations. The Scottish Mortgage share price has fallen 34% since November 2021.
But I also think the approach could potentially be lucrative over the long term if the trust’s managers are able to identify the right up-and-coming companies and start buying shares in them before they become too costly.
Scottish Mortgage’s own share price is up 34% in five years.
