In my youth, I dreamt of making money on the stock market. But for years, the fear of losses combined with a lack of knowledge held me back.
Like so many others, I thought stock trading was reserved for the mega-wealthy.
In fact, it’s easily accessible to anybody — even with just a few hundred quid to start.
The knowledge part, however, is crucial. Considerable time should be dedicated to researching investment best practices. Fortunately, there’s a wealth of information available online covering topics like budgeting, diversification and risk assessment.
Consider this strategy for a beginner to get started with just £350.
Managing expectations
Every investor’s journey is different so don’t make comparisons with sensational news stories. Very few investors — if any — become overnight millionaires by trading stocks.
Plan to invest with a 20-to-30-year outlook and be realistic about expected returns. Envision a goal like a slightly more comfortable retirement or a down payment on a home.
Choosing an optimal investment account
Investments often attract a variety of different fees which must be accounted for. Depending on the platform used, buying and selling can attract fees and many ETFs and investment trusts also have ongoing charges. These are usually unavoidable.
One big expense that can potentially be reduced is tax. A Stocks and Shares ISA offers a way for UK residents to invest up to £20k per year with no tax levied on the capital gains.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
How much to invest
Experts recommend allocating 15% of pre-tax income to investments. The average UK salary in 2024 was £2,334 a month, 15% of which is £350.
Investing that every month into a portfolio returning 10% on average could grow to over £255,000 in 20 years. Rebalancing the portfolio towards stocks with an average 7% yield would pay out £17,878 a year in dividends.
That leaves a healthy nest egg for emergencies and a decent bit of passive income to complement a pension.
Of course, these averages are illustrative and not guaranteed but are realistic based on historical market returns.
A good beginner stock?
Yes, I know — stock picking can be daunting! Even a simple financial summary delivers a shock of confusing metrics, with hidden risks seemingly behind every corner.
Fortunately, several well-established FTSE 100 ‘starter stocks’ are considered low risk. One popular choice to consider is the insurance giant Admiral (LSE: ADM).
The share price enjoys steady, consistent growth, up 100% in the past 10 years. Plus, it has a decent 4.7% dividend yield, providing added value for income investors.
Insurance can be tricky, especially during times of economic crisis and high interest rates. If consumers curb spending, Admiral’s share price could take a hit — as it did in 2022. It also risks losing market share to Aviva, which recently acquired fellow motor insurance firm Direct Line.
But those threats haven’t impacted the share price recently — it’s up 13% this year!
Revenue has been rising rapidly since 2020, up from £1.3bn to £5.2bn. After a big dip in 2022, earnings improved, with the net margin now up to 12.58%. In the second half of 2024, earnings per share (EPS) came in at £1.39, beating expectations by a massive 23%.
When searching for starter stocks, aim for well-established market leaders with steady growth and earnings.
This post was originally published on Motley Fool
