Here’s how £20 a month could put a stock market beginner on the path to wealth in 2025

Getting into the stock market is a goal some people put off because they think it takes much more money than it really does. In fact, with even £20 a month, it is possible to lay the foundations for trying to build long-term wealth in the market. Here’s how.

Is £20 a month really enough?

Let’s start with that £20 a month. Over one year, that would add up to £240. With more money, an investor could try to build their portfolio faster. But it’s possible to start with £20 a month and go from there. If more money’s available to invest in future, that could speed things up.

But I reckon there’s a lot to be said simply for getting going. Doing that on a fairly modest scale should hopefully make any beginner’s mistakes less costly.

How to start investing

On a practical level, the investor would need an account to put the money in and buy shares. There are lots of different options available when it comes to share-dealing accounts and Stocks and Shares ISAs, so I think it makes sense to look at the choices. Every investor is different.

Before even choosing shares to buy, a new investor could consider some important points about how to invest. For example, what is the right balance between risk and reward (again, what works for one person may not work for another)? And what are some of the practices a good investor likely wants to consider from day one in the stock market?

Building a portfolio

An example of such a good practice is not putting all your eggs in one basket. In stock market parlance that’s called diversification and it is possible even when investing with a very limited budget.

One mistake many new investors make is not being realistic about their expectations. That’s understandable as they lack stock market experience, but I think it is an important thing to watch out for. Some shares do brilliantly, but some go sideways and some do terribly.

So long-term wealth creation is helped by building a portfolio of shares in outstanding companies that are bought at attractive prices — and holding them.

Finding the right shares to buy

But how can a new investor (or an experienced one) decide whether a price is attractive?

Take Tesla (NASDAQ: TSLA) as an example. It has a large customer base and could benefit from further growth in the electric vehicle (EV) market. It has a proven, profitable business model. On top of that, the company’s knowledge of power storage has enabled it to grow a large and rapidly expanding energy storage business.

The Tesla share price is close to $400. On its own though, a share price does not necessarily tell us much about a company’s valuation (we also need to know how many shares there are, for example).

As an investor, I would happily consider buying Tesla shares for my portfolio at the right price. But the current valuation puts me off for now.

Its share price is around 109 times annual earnings per share. That seems very high to me, even before considering risks like fierce competition hurting the company’s profit margins.

The post Here’s how £20 a month could put a stock market beginner on the path to wealth in 2025 appeared first on The Motley Fool UK.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.