Image source: Admiral Group plc
Many people still think stock market investing is reserved for the wealthy or well-connected in society. In truth, there’s never been a lower barrier of entry for investors from all walks of life.
Getting started no longer requires a large lump sum of savings to open an account. Nor does it require the expensive services of an advisor or broker. Anybody with internet access and a bank account can start investing with just a few pounds if they wish.
But one of the biggest limitations that keep the average person from investing is fear.
People tend to fear things they don’t understand — especially when it comes to money. Trust in financial institutions has eroded since the 2008 financial crisis. Now, people are far less willing to part with their hard-earned savings.
Fortunately, another change has been the rapid rise of freely available information. Sorting through this information can be challenging but it’s there for those willing to learn.
What matters the most when investing is not so much the amount of capital available but deciding how to allocate it. The sooner one starts investing, the greater the eventual returns are likely to be.
Whether it be £50, £500 or £5,000, the most important thing is taking the first step.
Steps to getting started
- Think long-term: ideally, it’s best to consider an investment strategy with a long-term view. Be it for retirement or buying a house, it should be approached in terms of decades, not months. This gives the investment time to compound and grow exponentially.
- Assess risk tolerance: each person’s risk tolerance depends on their financial situation and how much they can afford to lose. High-risk investments are best left to those who can afford the loss.
- Define a budget: making regular contributions is the best way to build an investment. The more the better, but be realistic. Decide on a weekly or monthly amount and stick to it.
Picking stocks
With a solid plan in place, it’s time to pick stocks. When starting, it’s best to stick to well-established companies with a long history of stable growth. These are usually low-risk-but-low-reward stocks like Unilever or Diageo.
Consider the insurance firm Admiral Group (LSE: ADM). It operates across Europe and the US, offering motor, household travel and pet insurance along with personal loans. This diversity helps protect it against a downturn in any single country or area of insurance. It pays a reliable dividend with a yield of around 4%.
The stock dipped through 2022 and hasn’t fully recovered, up only 17.5% in the past five years. Rising inflation has subdued the UK insurance sector and continues to pose a risk to the stock, along with stiff competition and regulatory concerns.
But before Covid, it made solid and steady gains, growing at an annualised rate of 8.5%.
It’s now up 53% since its five-year low of £17.35 in July 2022. While the growth is promising, it’s pushed up the company’s price-to-earnings (P/E) ratio to 20.3, which could limit room for further growth.
Still, future cash flow estimates indicate it’s trading at 51.3% below fair value. Overall, I think it’s worth considering as a beginner stock due to its solid earnings, long-term potential and established nature.
