I believe learning to invest in shares is a worthwhile endeavour for anyone. For Australians, picking a share from the All Ordinaries (INDEXASX: XAO) index is a good place to start. There is risk attached to buying shares in publicly traded companies. There is also potential for returns well in excess of bank interest. Additionally, a small initial investment offers the opportunity to learn without too much at stake.
The upside of investing
The returns generated from investing in a share from the All Ords can be significant. As an example, 10 years ago REA Group Limited (ASX: REA) shares traded as low as $5.24 per share. Today, REA shares are trading at a price of $97.52 per share (at time of writing). That means an investment of $1,000 10 years ago would now be worth more than $18,000.
What to look for in your first share
When picking your first share, I suggest finding a company that is easy for you to understand. This will enhance the learning experience by making company announcements and their impact on the share price easier to follow. Picking a company which you believe has a bright future would also make sense.
Buying shares in a company that is financially sound is also smart. This can be a reflection of a good business model and/or sound management. Common metrics which indicate a financially strong company are low debt relative to equity, positive cash flow and high return on equity.
Price is another key element when making a share purchase. Even as a beginner, attempting to calculate what is a reasonable price to pay for a share is a valuable exercise. Paying a price well above true value can make it difficult to generate high returns over the long run.
Companies worth considering
Some companies which I believe are currently worthwhile considering as a first investment include Lendlease Group (ASX: LLC), Reliance Worldwide Corporation Ltd (ASX: RWC) and Westpac Banking Corp (ASX: WBC). I consider these companies to be reasonably priced and to have a strong long-term outlook.
Foolish takeaway
Buying a share trading on the ASX has the potential to generate significant returns for the investor. There are many elements that should be considered when making a share purchase, one of which is price. As a new investor, a small investment can also be beneficial from a learning perspective. Regardless of returns generated initially, this process could lead to greater wealth creation possibilities into the future.
