How’s how someone could start buying shares with 5% of their salary

Sometimes people who want to start buying shares can feel as if they might never get the chance. So many other spending priorities can pop up in life.

That is why I think it can make sense to target a specific, manageable part of one’s income for investing.

Setting a regular contribution level

How much that is will depend on an investor’s own circumstances.

Different people have different salaries – and different outgoings. For some, buying shares may be a high priority. For others, it may be something they only do on a very small scale.

In this example, I imagine someone puts 5% of their salary away each month to start buying shares and then build a portfolio over the long term.

How much that is depends on how big the salary is (and whether the person sticks to their good intentions!). It may also be that, over time, they decide to invest a higher or lower proportion of their earnings.

But I think setting a regular goal can help to build wealth over the long term, as it can lay the foundations for building a share portfolio.

Getting ready to invest

That money needs to be put into some sort of investment account. A helpful early step could therefore be comparing options for a share-dealing account, Stocks and Shares ISA, or dealing app.

While getting to grips with the nuances of the stock market is a long-term project, more pressingly I think a new investor needs at least to get to grips with key concepts like valuation and risk management before putting their hard-earned cash at risk.

Looking for quality businesses with attractive share prices

Each investor has their own approach to deciding what to buy.

Like billionaire investor Warren Buffett, I aim to buy shares in great businesses when they are selling for an attractive price.

An example of a share I have been buying lately is B&M European Value (LSE: BME).

A quick look at its share chart shows that not all investors over the past several years have shared my enthusiasm.

A chunky dividend looks attractive (and will hopefully generate passive income for me while I own the shares), but dividends are never guaranteed.

Indeed, one error some people make when they start buying shares (and sometimes beyond) is getting excited by the prospect of a dividend without asking themselves how sustainable the payout may be, based on their assessment of the company’s business prospects.

B&M has its challenges. Lately its sales of fast-moving consumer goods have been disappointing. That highlights the risk of a wider slowdown in other product categories too.

But I see a lot to like here. The company is well-known and, in a weak economy, its discount proposition may look attractive to even more shoppers. It has a large estate of shops, has been growing sales overall, and benefits from a sizeable pool of regular shoppers.

The post How’s how someone could start buying shares with 5% of their salary appeared first on The Motley Fool UK.

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C Ruane has positions in B&M European Value. The Motley Fool UK has recommended B&M European Value. 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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