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April sees a rush of people investing money in their stocks and shares ISA before the annual contribution deadline. But if I had never invested before and only had a few hundred pounds to invest, I would happily start buying shares now rather than waiting.
Here's why.
Longer schedule
Saving until you have thousands of pounds to invest can take a long time. For some people, years or even decades go by and they never have as much in their savings jar as they would like.
That's understandable. Life can throw up unexpected costs, and sometimes they just keep coming.
However, as an investor, time matters.
Part of the rationale for long-term investing is that by buying quality companies at the right price and then holding the stake for years, the stock is expected to reflect the strong performance of the business.
On that basis, waiting too long to start buying stocks may mean that one does not have as long an investment period to benefit from great options.
Cheaper mistakes
The idea, of course, is that buying stocks today can hopefully lead to profits in the future.
However, there is a learning curve in the stock market, just like anywhere else in life.
Some beginner mistakes are bound to happen sooner or later. Investing with a few hundred pounds could make those mistakes less costly than if you waited until you had thousands of pounds to invest before you started investing.
Focusing the mind
Another benefit I see in starting earlier rather than procrastinating is that having, say, £350 to invest would help me focus my mind more than having £35,000 to invest.
An important principle of risk management is diversification. Basically, that comes down to not putting all my eggs in one basket.
With tens of thousands of pounds to invest, you could spread the money across dozens of different stocks if you wanted to.
However, at £350 that's not practical.
Buying shares often comes with a minimal fee or commission (depending on the ISA or share trading account you choose). Many of them could eat up to £350 badly.
If I can only buy two or three different stocks, I would be very motivated to spend time doing proper research before I start buying.
Following the broader market
One option could be to buy shares of an investment trust such as City of London (LSE: CTY).
An investment trust is a pooled investment. So by investing just a hundred or two hundred pounds in City of London shares, I would in turn be gaining indirect exposure to the dozens of different shares the trust owns.
Some of these trusts simply follow a popular index such as the FTSE 100 but in some, including the City of London, trust trustees make active decisions about what to buy.
A risk with that approach is that those decisions will harm us. The City of London focuses primarily on the UK market. A weak British economy could hurt the performance of the stock market… and that of the trust. In fact, its shares have fallen 3% in the last five years.
But it has been a solid dividend payer and offers a 5% yield. It has increased its dividend annually for more than half a century, although that's no guarantee of what's to come.
