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it takes money to make money, as the old saying goes. That is true when it comes to the stock market. To start investing takes some money.
Not everyone who wants to invest has much to spare.
Something I see as an advantage of the stock market compared to some other types of investing is that it has a lower cost of entry. It is possible to start buying shares with just a couple of hundred pounds (or even less).
To illustrate, here is how someone could start investing with £3 a day.
A regular saving habit can build up investment capital
£3 a day might sound like a lot of money.
But think about what it adds up to over time. Within one year, £1,095. Over a decade, it would be more than £10k. Great oaks grow from little acorns, so I think it can be worth starting even on a tight budget.
Given that, it is easy to understand why I think a regular saving habit can be a powerful discipline for someone to get into even if they can only spare a few pounds a day.
To get going on such a habit, I think it would help to choose a share-dealing account or Stocks and Shares ISA into which to deposit the daily £3.
Where and how to start investing
On limited funds, does it make sense to go for the most exciting seeming share? What about one that has already done brilliantly, like Nvidia or Tesla?
A common mistake when people start investing is not understanding how investors actually make money.
Choosing a company that has excellent commercial prospects is only part of it (and past performance is not a reliable indicator of what will happen in future).
Another key part is valuation. What you pay for a share matters because making money typically involves buying a stock for less than it turns out to be worth over the long run, between share price gain and dividends.
Even the best share can come a cropper, so a savvy investor always diversifies. £1,095 a year is ample to spread the risk across multiple shares.
In short, before someone rushes to start investing, they ought to learn about how the stock market works.
Choosing shares to buy
They can then start finding shares to buy.
I like to stick to areas I feel I understand well and businesses I reckon I can judge.
For example, one share I recently bought is Greggs (LSE: GRG). Its 2024 results published last week did not excite much enthusiasm in the City — and the share went tumbling.
But the business looks solid to me. Demand for convenient food like pastries and sandwiches is high and also resilient. There are lots of rivals, but Greggs has a few competitive advantages in my view. One is its large estate of shops. Another is unique product offerings.
The company remains solidly profitable. So, why has the share price fallen to a level that is only 12 times earnings?
Higher staff costs due to last year’s Budget changes are one reason. Another risk is ongoing decline in many high streets, potentially meaning fewer customers.
But I think this is a solid business – and that valuation also looks very reasonable to me.
