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Getting into the stock market can seem exciting, but also a little scary and potentially expensive. In reality, however, it is possible to start buying shares for just a few pounds a week.
Like many investors, I try to contribute money to my investment fund regularly, but the amount can vary depending on circumstances. That's why sometimes I put in a very modest amount.
Using £10 per week as an example, this is the approach an investor might take.
Getting ready to invest
You can't start driving without having something to drive. Likewise, to start buying shares you need to have some practical way to acquire them.
There are many options available. For example, there are different types of ISAs and many different options. The same goes for share trading accounts, trading apps and SIPPs.
With so many options, I think it makes sense for investors to take some time to try to choose the one that suits them best.
Make regular contributions
Ten pounds a week may not seem like a great base to invest on.
In fact, I see some advantages in starting to invest with less, not more. It can be quicker than waiting to save large amounts and hopefully means that beginner mistakes will be less financially painful.
Plus, £10 a week can add up. Over time, even if an investor sticks to that rather than increasing their contributions, they will be investing thousands of pounds.
Investing £10 each week at a compound annual growth rate (CAGR) of 12% should mean that after a decade a portfolio will be worth more than £9,600. Not bad!
Finding the right stocks to buy
Still, while a 12% CAGR may not seem like much, it's actually quite ambitious.
Some stocks will disappoint (which is why a smart investor keeps their portfolio diversified at all times). While some years may see strong performance, others may see difficult market conditions.
But as a long-term investor, when I start buying shares of a company it is because I believe that company has a competitive advantage in a market from which I hope to benefit from strong customer demand in the long term. If I buy great companies when their stock prices are attractive, I hope my portfolio can perform well.
As an example, a stock that I believe has great long-term potential is JD Sports (LSE: JD). That's why I see it as a stock that investors should consider buying.
The dividend yield is currently below 1%, so the appeal here is primarily the potential share price growth, rather than income, as the key driver of investment returns.
However, in five years, JD Sports' share price has plummeted 36%. Oh!
Forward focus
But it's important to remember that past performance is not necessarily a guide to what may happen in the future.
The share price decline reflects a number of risks, including weak consumer spending and the possibility that the company overextends itself with an aggressive program of store openings and deals such as a big acquisition in the United States this year.
But I see those measures as potential drivers of growth. JD has a proven and highly profitable business model. Customer demand remains high, its global presence gives it economies of scale and it has proven adept at juggling online and offline retail operations.
