Must it be complicated or costly to start buying shares? No and no.
Here is how an investor could do it for just £5 a day, in five simple steps.
1. Learn about the stock market
The first move would be to get to grips with how the stock market works.
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For example, when a company like Apple has big sales and profits, what does that mean for its valuation?
Learning about concepts like valuation, diversification and how to read company accounts is critical if someone who wants to start buying shares is serious about aiming to build wealth.
2. Decide how to invest
A second move is deciding an investment strategy.
This can be very simple. But I think having a plan is important, even if it changes along the way.
For example, what is the right balance between growth and income shares? What about UK versus foreign shares? How can an investor decide whether a share looks fairly priced or not?
3. Get ready to invest
A next step could be setting up an account that allows one to buy shares, and starting to transfer £5 a day into it.
Over just one year, that would add up to more than £1,800 so is more substantial than it may sound.
There are lots of options available and each investor is different, so I think it makes sense to check out different share-dealing accounts and Stocks and Shares ISAs before making a choice.
4. Construct a portfolio
With enough funds to diversify and a way to deal, it could be time to start buying shares – depending on what is available.
My own approach is to aim to buy shares in great companies that I understand at attractive prices. If none is available, an investor could simply let the £5 a day keep piling up until one is.
One of the shares I think new investors could consider is Legal & General (LSE: LGEN).
Its focus on retirement-linked financial services means it has a large and potentially lucrative target market. The firm’s brand and heritage help it to set itself apart from rivals and it has a large client base.
It is a solid dividend payer, currently offering an 8.3% yield. That means that £100 invested today (less than three weeks of saving £5 a day) would hopefully generate £8.30 annually in dividends.
The company announced last week that it plans to sell its US protection business and anticipates spending the equivalent of around 40% of its market capitalisation in the next three years on share buybacks and dividends.
One risk I perceive is overspending on share buybacks, hurting the overall business valuation. But I see Legal & General as a proven, well-run business and regard its commercial prospects favourably.
5. Staying the course
After an investor starts buying shares, what next?
I am a buy-and-hold investor. So I am happy to buy shares and hold them for the long term, unless the investment case changes substantially.
Doing that, and continuing to contribute £5 a day, even a new investor could hopefully lay the foundations for long-term wealth-building.
