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What does it take to get into the stock market? Some people want to start buying stocks but keep putting it off because they think it costs a lot of money.
In fact, not only is it possible to get to invest in a tight budget, but I think there are some advantages compared to waiting for a big pot before someone leaves. One of them is that, hopefully, any rookie mistakes won’t be financially painful.
If I were in the shoes of a friend who had spare cash a day and wanted to start buying stocks, this is what I would suggest they consider doing.
Finding a way to invest in a property
My first move would be to make sure I had a way to invest!
So I would set up a stock trading account or a Stocks and Shares ISA, and start putting my £5 a day into it.
Focus on your goals
That money will quickly start adding up.
That £5 a day may not sound like much. But in a year that adds up to £1,825 – and over 10 years, more than £18,000. As a long-term investor, that’s music to my ears.
But accumulating money is not the same as putting it to work. I want to buy stocks, after all. But before I do that, I would take some time to decide what my goals are in the stock market.
Some investors focus on buying companies that they think have good growth opportunities. Others are more focused on dividends. Some play both.
Buy and hold
Next, I would start buying stocks if I could find what I saw as great businesses selling at attractive prices.
Note that I use the plural. It can be tempting as a first-time investor to approach one business that looks very interesting.
But diversifying your portfolio is an important risk management tool – and I’ll be using it from day one.
As an investor, not a trader, I will not buy stocks with the hope that I will sell them at a profit shortly afterwards. Instead, I would buy stakes in companies I had planned to own for years.
Looking for stocks to buy
What kind of stocks should I start buying?
As I said above, I will focus on buying what I see as large businesses that are selling at attractive share prices.
As an example, this year I bought shares in it Filtronic (LSE: FTC), which I see as a share that investors should consider buying.
The business is still very young. But I think it has a lot going for it. SpaceX is a repeat customer and, as it continues to expand its satellite network, I am hopeful that the US space company may place additional orders in the form of Filtronic.
Not only that, but hopefully the fact that SpaceX has made multiple purchases from Filtronic will help attract new customers.
Yes, over-reliance on a single buyer can be a bad thing. Filtronic’s share price has more than quadrupled in the past year. I think that’s because of the SpaceX sale. I see a risk that, if Spacex stops buying from the company, its shares could fall.
But I think its technical capabilities give Filtronic a strong competitive advantage. That is why I am happy to own this share.
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