Getting into the stock market does not take a couple of million pounds, or even a couple of hundred thousand. In fact, it does not even take a couple of thousand. It is possible for a stock market beginner to start investing with just a couple of pounds a day. Just like this.
A regular investment habit
Putting aside £2 a day could help form a long-term, regular saving habit. The money could soon add up. In a year, it would provide £730 to invest. On top of that, £2 is only a starting amount. Over time, an investor could choose to put in more if their finances allowed.
An obvious first move would be to set up a share-dealing account or Stocks and Shares ISA and start putting the money into that on a regular basis.
Getting to grips with investment
Before putting money into the market it is worth spending some time to learn more about how the stock market works.
For example, an investor should understand ideas like reducing risk through diversification (harder on a very small budget, but still possible and important). And why valuation matters not just how strong a business is and how to be a good investor.
Finding shares to buy
Next, they could start looking for shares to buy. When they start investing (and beyond, in many cases), investors may overestimate their skill level in choosing shares and underestimate the possible impact of risks.
So I think it can pay to start with a more not less conservative approach focused on wealth retention more than aiming for dramatic wealth creation.
As an example of a share an investor should consider, I would point to J Sainsbury (LSE: SBRY).
The demand for groceries is large and resilient. Sainsbury’s is able to compete effectively in that market, both online and offline, thanks to a strong brand, large customer base, a well-developed loyalty scheme and store estate.
It has a dividend yield of over 5%.
I do see risks. The grocery industry is highly competitive, squeezing profit margins. The company’s plans to cut costs by getting rid of lots of staff could hurt customer service, leading to some shopping elsewhere.
Over the long term though, I think the outlook for the FTSE 100 retailer looks decent.
Being realistic about expectations
At a yield of 5% or so, investing £2 a day for one year could earn just over £36 in dividends annually. Dividends are not the only focus when people start investing as growth can also be important. Individual investors can decide their own focus, between growth and income shares.
That £2 a day, even within a matter of months, could be generating more money in the form of dividends. By ploughing that back in, continuing to put in £2 a day (or more) and buying shares to hold for the long term, I think someone could start investing now with no experience and potentially build the foundations for wealth creation in years to come.
The post Here’s how a stock market beginner could start investing with £2 a day 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 J Sainsbury 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.
