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Could 2025 be the year to start investing in the stock market, even if only on a limited budget? I expect many people will be asking themselves that this month – and, as happens every year, some of them will end up doing nothing between now and the end of December!
But it need not take a lot of money to become a stock market investor. Here is how someone could start buying shares with a spare £260 this week.
Starting now versus procrastinating
There is always a reason (or excuse) to put off starting, even if it can be done with a fairly small amount of money. Maybe waiting for more knowledge, a better looking market, or even fear of the market crashing.
I think knowledge is helpful, so it definitely makes sense for someone to get to grips with how the stock market works before they begin to invest.
But I think there are good reasons to start sooner rather than later. After all, I take a long-term approach to investing and think many investors would benefit from having a longer not shorter timeframe available to them.
Don’t try timing the market
But what about the other potential concern I mentioned, that there may be a stock market crash around the corner? That may always be true, in the sense that the market will crash again sooner or later, although none of us knows when.
But I think it would be more worrying if an investor sought to ‘buy the market‘. As my own approach focuses on buying a diversified selection of individual shares to buy, it bothers me less.
Even in a broadly overvalued market there can be some bargains – and actually I think the UK market currently offers quite a few such bargain opportunities.
With £260, diversification may seem tricky – but it is still possible to invest in, say, a couple of different shares.
Getting ready to invest
Before actually buying any shares, an investor needs a way to do so. With just £260, minimum fees and commissions could quickly eat into the money when buying and holding shares.
So I think it makes sense to take time to compare different share-dealing accounts and Stocks and Shares ISAs. Different investors each have their own financial situation and objectives.
Looking for shares to buy
When looking for shares to buy, I think most new investors could do worse than to try and keep it simple. By that, I mean sticking to large companies with proven business models they understand.
But finding the right company is not enough for successful investing. It is also important to find it at the right share price. One share I think investors should consider is Aviva (LSE: AV).
The FTSE 100 insurer has a strong business thanks to high, resilient demand for insurance services. It has strong brands and a very large customer base that can help it capitalise on that.
The company has been raising its annual dividend per share since a cut in 2020 (no dividend is ever guaranteed to last). It yields 7.3%. So half the £260 put into Aviva shares would hopefully earn around £9 a year of passive income.
One risk I see is the proposed merger with Direct Line leading competitors to target customers by cutting prices. That could hurt profits for Aviva.
