To start investing, you don’t need an abundance of cash. I think I could start with just £20 a week.
In fact, I know I could. That’s because when I started, it’s how much I was investing. It’s more than enough to kick off an investment journey.
Here’s how I did it.
Stay consistent
The key for me was thinking of my long-term goals. As a 20-something-year-old, I’m already planning for my retirement. While £20 a week may seem insignificant now, I know over the period of a few decades, it’ll make a difference.
That’s because the stock market rewards patient investors. Peaks and troughs are part and parcel of investing. The best way to make solid returns is to invest for the long run.
£20 a week invested in the stock market at an 8% return a year on average (the average return of the FTSE 100) for 30 years would leave me with £119,229. If I applied the ‘4% drawdown rule’ to that, I’d have an extra £4,796 a year in retirement to boost my State Pension.
On top of that, there are ways I can increase that figure. For example, with any spare cash I have at the end of the month, I’d add to my weekly payments. Just an extra £10 a week would leave me with £178,843, or £59,614 better off.
This in action
Stock performances are volatile. That’s a fact. However, being persistent can pay off.
Take Burberry (LSE: BRBY). This year, its stock has struggled. In 2024, it has fallen 8.2%. In the last 12 months, it has been pulled back 49.1%.
However, If I’d purchased shares 20 years ago, I’d be sitting on a 277.4% gain. That’s an average rise of 13.9% a year, beating the annual return of the FTSE 100.
Now, I’m not saying that it’s guaranteed Burberry will rise a similar amount in the next 20 years. As I said, the market can be unpredictable. Yet I think the stock is in good shape to perform well.
For example, it’s trading on a cheap valuation. Its price-to-earnings ratio, which is calculated by dividing a company’s market cap by its earnings per share, is 11.2. That’s in line with the average of all FTSE 100 constituents. However, it’s significantly below Burberry’s historical average of around 24.
On top of that, Burberry also pays a dividend yield of 4.9%. That’s above the FTSE 100 average of 3.9%. With the income I receive, I’d reinvest it back into buying more shares.
Now, Burberry will face issues going forward. The business has come under pressure in recent times as consumers have cut back on buying luxury goods. That’s understandable given the cost-of-living crisis. Its latest trading update showed that revenue for the 13 weeks ended 30 December 2023 fell by 7% year over year.
However, I’m willing to ignore short-term volatility in favour of the bigger picture. Burberry stock looks cheap to me. Its CEO Jonathan Akeroyd also has ambitious plans for the business in the years to come.
One piece of the puzzle
I wouldn’t invest all my money in one company. Diversification is key to having a successful investment journey. But it’s quality companies like Burberry that I’m always keen to add to my portfolio with any investable cash I have.
The post I’d start investing with just £20 a week appeared first on The Motley Fool UK.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry Group Plc. 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.
Motley Fool UK 2024
