Lots of people dream about getting into the stock market, but never actually start buying shares.
I already own some shares and plan to keep investing next year. But whether as a seasoned investor or a new one, some common principles apply in the stock market.
One is that it does not necessarily require a lot of money to buy shares. In fact, even if I only had a couple of hundred pounds to invest, I would be happy to start buying shares.
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Profits can add up – and so can costs!
With only a couple of hundred pounds to spare, minimum fees or commissions could soon add up.
But the reality that any savvy investor keeps a sharp eye on costs. I think that is true whether they are investing a couple of hundred pounds, or a couple of hundred million!
It is easy to focus on profit potential when starting buying shares. But it is important to consider the flip side of the coin too: the potential for money to go out the door, instead of coming in.
That can be because shares go down in price after buying them. At least with a smaller investment, that loss can be less painful than when large amounts are at stake.
But money can (and does) also go out the door in the form of fees, commissions and other charges. So I keep an eye on whether I am getting the best deal for my own needs, whether in a share-dealing account, Stocks and Shares ISA, or SIPP.
Aiming to grow wealth — over the long run
Some people start buying shares expecting to strike it rich even if investing just a small amount of money. My own ambition when buying shares is far more modest.
As billionaire investor Warren Buffett says, the first rule of investing is not to lose money – and the second rule is never to forget the first rule.
In other words, focus on potential risks not just rewards. I aim to make more money than I lose over time — but am always mindful of managing risks.
So I think an example of one share investors should consider buying when they start in the stock market is City of London Investment Trust (LSE: CTY).
An investment trust is a pooled investment fund. The fund uses shareholders’ combined investments to purchase and manage a portfolio of shares.
That means an investor could diversify even with limited funds, as buying a share in City of London already offers diversification, thanks to its holdings in dozens of blue-chip firms.
The trust’s track record of annual dividend increases stretches back to the time England won the World Cup – and nobody needs reminding it is a long time!
Investing on a budget
Buying a share like City of London need not cost the earth. Indeed, its current share price is under £5. There are risks. The trust’s heavy UK focus means it could suffer from the weak performance of the British economy, for example.
But all shares carry some risks. By choosing carefully and diversifying, I think even a couple of hundred pounds could be put to use in the stock market. It need not take large sums to start buying shares – or to continue doing so!
