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There are many reasons (or excuses) people use to put off buying stocks, from lack of extra money to needing more time to do research. But time, as they say, kills all deals. If you had never invested before and wanted to start buying stocks for the first time on a limited budget, this is the approach I would take. In fact, it's the approach I currently take as an investor!
Why starting small may be better than waiting for size
Before I get into the details of how I invest, let me explain two reasons. because I think it may make sense to start buying stocks on a limited budget.
The first is that although people start investing with the hope of making money, the path is not always easy. Beginner's mistakes can be painful but valuable lessons in investing. Making those mistakes with less money on the line can make them less painful, but just as valuable.
A second reason is that life often presents us with the need for money. Waiting until you have saved many thousands of pounds before investing could mean waiting a long time in some cases and potentially missing out on great stock market opportunities in the meantime.
A practical approach to investing
So how would you start buying stocks in practice?
My first step would be to investigate the wide range of share trading accounts and stocks and shares ISAs available, to select one that suits my individual needs.
I would start making regular contributions. £25 a week adds up to £1,300 a year. My approach is to invest what suits me best, although I try to have some consistency, as I think that creates habit.
With the ability to buy stocks, you could address ideas like how to value them.
I would then look at companies that I understood and felt had strong long-term business prospects to decide if I wanted to buy them. Even with a lot of research, what seems like a promising company could turn out to be disappointing. So I would start buying stocks the way I intended to (and in practice do): diversifying across a range.
Here is an example
As an example, I think investors interested in passive income potential should consider buying a stock: M&G (LSE: MNG).
I like companies that operate in markets with a large number of potential customers and high revenue potential. This is certainly true in the asset management space that M&G operates in, and I expect that to be true in the long term as well.
M&G can compete thanks to some particular strengths. You have a well-known and respected brand, which helps you attract and retain customers. It has an established customer base, with more than 5 million retail customers and 800 institutional customers. He also has deep experience in the financial markets.
Still, one risk I see (and all stocks have risks) is that clients withdraw more money than they put into M&G funds, as has been happening lately in most of the company's business (excluding its Inheritance division).
Overall, though, I like the company's potential relative to its share price. I'm also attracted to its considerable dividend yield of 9.8%.
