If you have ever thought about getting into the stock market but not acted on that thought, you are far from alone.
A lot of people let their stock market dreams die without investing a single penny. That might be because the market can seem confusing, or they do not have much spare money to invest.
The market can indeed be confusing, although that is a source of opportunity as well as risk. As for budget, it is possible to lay the foundations for potential stock market success with just a few hundred pounds.
Setting up a way to buy shares
As an example, someone with £320 certainly has enough to get going, in my view. That is also enough to diversify across some different shares.
The investor needs a way to use that money actually to buy shares, though. That might be a share-dealing account or Stocks and Shares ISA, for example.
As lots of options are available it is wise and financially sensible to compare them. Each investor has different priorities.
Learning how to participate effectively in the market
What about the potentially confusing nature of the stock market that I mentioned above?
To some extent, almost all investors end up learning as they go. As with many things in life, doing something teaches you about things that can work and things that do not.
Still, before investing any of the £320, I think someone would do well to learn about basic stock market concepts, from how shares might be valued to why first-time investors may benefit from focusing on consistency.
Finding shares to buy
Next, what about choosing the right shares to buy?
Long-term wealth creation is partly about putting money to work (maybe adding to the initial £320 over time) and achieving attractive growth. But it is also about carefully managing risks. That is something stock market beginners sometimes do not think about hard enough.
For example, if the £320 was invested in shares that fell 50%, how much would they then need them to rise to get back to their starting point? 50%? No, in fact they would now need to double (grow 100%) just to cancel out that 50% fall.
Clearly, spending time and effort to find the right shares to buy is important.
One share to consider
A share I think a stock market beginner should consider now is FTSE 100 financial services firm Legal & General (LSE: LGEN).
It focuses on retirement-linked financial products. That is a huge, lucrative market and one I expect to stay that way over the long run.
Legal & General is able to compete successfully thanks to a number of commercial advantages, including a large customer base, well-established brand and deep operational experience in the financial markets.
Profits have fallen in the past couple of years, though. I see a risk that volatile stock markets could lead policyholders to pull out funds, hurting Legal & General’s earnings.
More positively, it has raised its dividend per share annually in recent years.
It now offers a dividend yield of 8.8%, meaning that for every £100 invested today a shareholder would hopefully receive around £8.80 in dividends annually, if the dividend is maintained.
This post was originally published on Motley Fool
