Getting into the stock market is something many people think about without actually doing. One reason some would-be investors do not start buying shares is a perception that it requires a lot of money.
In fact, though, it is possible to begin one’s stock market journey with a relatively small sum. I also see some potential advantages in doing so.
Why starting small can be better than going large
One reason I think an investor might want to begin on a smaller scale is speed. Saving up lots of money can take a long time, so beginning with a few hundred pounds could provide a quicker entry point to the market.
As a believer in long-term investing, I think that could be useful as it potentially extends the timeframe of one’s investing career.
While people start buying shares with the hope of making money, sometimes there are some beginner’s mistakes along the way that cost money. At least with a smaller amount at stake, such mistakes will hopefully be less financially painful!
Investing with under £300
So, clearly I see some potential advantages to an investor beginning on a small scale. I also think it is possible to do.
That said, there can be some challenges.
For example, diversification is a useful, simple risk management strategy. Diversifying with just a few hundred pounds can be harder than when investing bigger amounts – but it is still possible.
Another thing for investors to consider is minimum charges or commissions. On a £280 pot of money, they could soon add up to a relatively large expense.
So I reckon a smart first-time investor will weigh up the different share-dealing accounts and Stocks and Shares ISAs available, to see what seems to suit their own circumstances best.
On the hunt for shares to buy!
Having done that, the £280 does not need to burn a hole in the pocket (or ISA).
It can sit until the new investor finds what seems like a great opportunity to start buying shares. Patience is a virtue and that can certainly be the case when it comes to investing.
How might such an investor find the right kinds of shares to start buying?
Everyone has their own objectives and approach. But I think one share new investors should consider is Reckitt (LSE: RKT).
Risk as well as reward is always important to consider and Reckitt does face some risks that could hurt the share price, notably long-term legal disputes about product safety.
But one positive aspect of such woes is that it means Reckitt shares can now be bought more cheaply than they could a few years back.
This is a company with a massive market. As people will keep cleaning their homes, for example, I expect that to continue to be the case.
While it faces strong rivals, Reckitt can lean on competitive advantages such as its well-established portfolio of premium brands that span the globe. That helps it reward shareholders with dividends. At the moment the dividend yield is 3.8%.
The post Is £280 enough to start buying shares for the first time? Yes – and here’s why! appeared first on The Motley Fool UK.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
