How investing £50 per week could help you to retire early!
When I speak to people about investing in shares, they'll often assume that it's only for rich people and that it's time-consuming and difficult.
But my Motley Fool colleague Peter Stephens has explained how you can seriously boost your pension pot for just £5 per day, with no expertise and with very little effort.
And I'm going to repeat my favourite stock market statistics -- according to Barclays, which has been analysing stock market returns since 1899, £100 invested in UK shares in 1945 would have grown to a massive £179,000 with all dividends reinvested!
Peter looked at investing in a simple FTSE 100 or FTSE 250 index tracker, but what about picking your own shares? With £50 per week (a bit over £200 per month), I reckon it's not hard.
Pick your own
Just as many brokers offer index trackers with regular monthly payments, you can get the same with a plain execution-only stockbroker account. There are even some that will allow you to put aside as little as £20 per month, so getting your cash into the account is easy enough.
The mechanics of making purchases are really not too tricky either. Most accounts these days are online-only, and once you enter the stock you want to buy, you'll be given a quote for it which will be valid for around 20 seconds -- as long as you like the price, just hit the Buy button and the shares are yours.
Charges
You'll have to pay a fee, which is typically around a fixed £10 per trade, and when you buy you'll have to pay 0.5% stamp duty (but not when you sell). That will determine the smallest trade that's cost effective, and you won't want to plonk your first £50 on shares straight away -- not with an effective 20.5% charge.
But if you let the cash build up every month, in 10 weeks you'll have £500 and the charge will then equate to 2.5%. And if you can wait until you have £1,000 (which is my preferred minimum amount), you'll only be paying 1.5% per purchase (and only 1% when you sell).
That still leaves you with the decision on what to buy. And the beauty of letting your cash build up slowly is that it gives you a few months to look around and do a little research.
Three guidelines
And I don't think that takes a lot of work, if you stick to three basic beginners' guidelines...
Stick to mature companies in the FTSE 100, which should be less risky than smaller companies, and they'll be very well researched. I reckon you could do worse than check each company's quotes page here on the Motley Fool and check out our writers' opinions.
Look for decent dividends. There are plenty of different strategies out there, which usually fit into growth-based or income-based themes. But when you're starting out, I think going for decent dividends is probably the safest approach.
Then diversify. For your first half dozen or so selections, pick from a different sector each time. Choose, say, a bank first, then a utilities firm, then an oil company, and so on. That spreads the risk.
By the time you've made your first five or six purchases, you could be two years into your investment career and will have built up quite a bit of knowledge.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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