A lot of people think about investing in the stock market but never get around to it. But the later one leaves it in life to begin building a shares portfolio, the less time one has for it to mature. That matters because time can act as a force multiplier if one buys shares in businesses that do better as the years go by. That is why if I wanted to dip my toe into the stock market in my mid-thirties, I would consider doing it by investing £100 a month in FTSE shares.
The power of regular investment
£100 a month may not sound like much. But it could add up over time, meaning that my portfolio will hopefully get bigger and bigger.
Without actually investing, many of us think we could do well in the market. But like riding a bike, knitting or speaking Spanish, learning how to do something often involves some errors along the way. So I think investing a fairly modest amount in the beginning would allow me to learn some important lessons about how the stock market works. I could also figure out my own psychology as an investor.
Over time, I could decide to increase the amount I paid each month into an investment vehicle such as a share-dealing account.
Starting with FTSE shares
It can be tempting to begin investing by buying shares in some little-known company that reckons it has come up with the next big thing.
That can sometimes produce stunning results — but for many new investors it is a pathway to disappointment.
So I would start my own investing journey by focusing on larger companies with well-established business models that have a track record of profitability. That does not guarantee that they will do well in future. But a key element in investing is limiting one’s risk, not just aiming for heady returns. So to begin, I would focus on blue-chip companies like FTSE stalwarts British American Tobacco, Reckitt and Associated British Foods.
I would be looking for a combination of capital growth and dividends. If I started in my mid-thirties I would have around three decades before retirement, so compounding dividends (reinvesting them into new shares) could also help boost my portfolio value over the years.
But what if some of those FTSE shares turned out to disappoint me? For example, well-established companies can find it harder to grow than small ones. To be honest, I would be surprised if at least some of the shares did not disappoint me over time. That is why, even with £100 a month, I would diversify my portfolio across a range of business areas and companies.
Increasing wealth
This approach may not make me rich any time soon. But a slow, steady strategy based on drip-feeding money into a range of different FTSE100 shares would hopefully help me increase my wealth over time.
It would also teach me more about how the stock market works in real life. That could enable me to widen my search for promising shares beyond familiar FTSE names — once I am ready for that step.