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The stock market can seem like an intimidating place. But it can also be viewed as an intriguing and potentially lucrative place to try and build wealth. However, a lot of people never even start investing despite best intentions.
One reason for that is the idea that it takes lots of money. In fact though, it is possible to start buying shares with far less money than some other asset classes require.
If someone had a spare £400 and no prior stock market experience, here is how they could get going today.
Setting up a way to deal
A simple first step would be putting the £400 somewhere where it can later be used to buy shares. This could take time to set up, which is why I suggest doing it first.
That could be a share-dealing account, Stocks and Shares ISA or a trading app.
Learning the basics of investing
Before putting any of that money to work in the market, I think it is important for the investor to understand basic concepts such as valuation, diversification and how people make money (or lose it) in the stock market.
Setting a goal and strategy
I believe it can be helpful for someone to decide what they aim to achieve through investing and how they plan to try and get there.
That does not have to be complicated. But for example, there can be a difference between investing in little-known start-ups hoping to benefit from strong growth prospects versus buying into mature companies that have no growth prospects but pump out dividends like they are going out of fashion (which such a company may be!)
Finding shares to buy
Diversification is an important but simple risk management approach. That £400 is enough to diversify, across a couple of shares at least.
Finding the right shares to buy might not be as simple as it first appears. But it is critical to success and so is worth doing properly.
Simply finding a great business may not be enough — a common mistake people make when they start investing. A great business is a start – but the share price also matters (paying too much because even a brilliant business can make for a terrible investment).
A share to consider
One share I think people who want to start investing should consider is FTSE 100 asset manager M&G (LSE: MNG). Asset management is an industry that benefits from resilient customer demand. As large sums of money are involved, even small commissions can soon add up.
M&G is able to compete successfully thanks to a strong brand, large customer base and presence in multiple global markets. Its proven business model is highly cash generative and it aims to maintain or raise its dividend per share each year. Dividends are never guaranteed at any company though.
The current dividend yield is 9.1%, meaning a £100 investment now will hopefully earn £9.10 a year in dividends, even before considering the potential for a rise.
One risk I see is investors pulling out more funds than they put in. That is a challenge M&G has been battling in its core business lately that could hurt profits.
