There are lots of reasons (or excuses) people use to put off buying shares, from a lack of spare money to needing more time to do research. But time, as they say, kills all deals. If I had never invested before and wanted to start buying shares for the first time on a limited budget, here is the approach I would take. In fact, it is the approach I do take as an investor currently!
Why starting small can beat waiting for size
Before I get into the details of how I invest, let me explain two reasons why I think it can make sense to start buying shares on a limited budget.
The first is that, although people start investing hoping to make money, the path is not always a smooth one. Beginners’ mistakes can be painful but valuable lessons in investing. Making such mistakes with less money at stake can make them less painful — but just as valuable.
A second reason is that life often throws up the need for money. Waiting until one has saved up many thousands of pounds before investing could mean waiting a very long time in some cases – and potentially missing out on great stock market opportunities in the mean time.
A practical approach to investing
So, how would I start buying shares in practice?
My first move would be to investigate the wide range of share-dealing accounts and Stocks and Shares ISAs available, to select one that suited my own individual needs.
I would start putting in regular contributions. A weekly £25 adds up to £1,300 per year. My approach is to invest what suits me, although I aim to have some consistency as I think that is habit forming.
With the ability to buy shares, I would get to grips with ideas like how to value them.
Then I would look at companies I understood and that I felt had strong long-term commercial prospects to decide whether I wanted to buy them. Even with lots of research, what seems like a promising firm could turn out to disappoint. So I would start buying shares the way I meant to go on (and in practice do): by diversifying across a range.
Here’s an example
To illustrate, one share I think investors with an eye on passive income potential should consider buying: M&G (LSE: MNG).
I like companies that operate in markets with a large number of potential customers and big revenue potential. That is certainly true of the asset management space in which M&G operates – and I expect that to be true over the long term too.
M&G can compete thanks to some particular strengths. It has a well-known and respected brand, helping it attract and retain clients. It has an established base of clients, with over 5m retail and 800 institutional customers. It also has deep financial markets experience.
Still, one risk I see (and all shares have risks) is clients pulling out more money than they put into M&G funds, as has been happening lately in the main part of the company’s business (excluding its Heritage division).
On balance, though, I like the company’s potential relative to its share price. Its chunky dividend yield of 9.8% also appeals to me.
This post was originally published on Motley Fool
