The New Year is a natural point at which to reflect on finances and decide what to aim for in the coming 12 months. As such, lot of people think it might be time to start buying shares. But only some of them follow through, while others miss out on the potentially rewarding activity of investing.
If I had a spare £500 and had never bought a share before, I would start doing so this month. Here is why and how.
Starting small
The idea of investing is about increasing personal wealth. So while £500 is not an insignificant sum, it may be less than many people think of when they imagine diving into the stock market.
But I think starting on a relatively small scale can be useful. It would allow me to invest sooner than if I chose to save up thousands of pounds before starting.
Beginning with a fairly modest sum would also reduce the cost of mistakes. Investing is like anything else – it takes time to learn and some of the most powerful lessons come through errors. If I invested £500 in a couple of different shares and one of them turned out to be a dog, it would hurt. But it would not be nearly as costly as if I had started with £20,000 and split it across the same two companies.
Investing in January
But could now be a good time to invest – or would I wait?
I do not try to time the market. Rather, I ask the same question whenever I consider investing. Right now, can I find what I see as a great company trading at an attractive share price? If the answer is positive, then I will consider investing in it regardless of how the broader market is performing.
In that sense, if I was going to start buying shares for the first time, I would be happy to do it in January as I see opportunities in the current market. Consider Google parent Alphabet as an example. I see it as a business with outstanding long-term opportunities, thanks to its large user base and proprietary technology. I also consider the current valuation as attractive.
So if I had £500 to invest, I think I could find the right quality of companies at sufficiently appealing prices to put my money to work in the market this month.
But as I mentioned above, I would spread it over more than one company. Like any business, Alphabet faces risks. For example, maybe an advertising slowdown will hurt revenues and profits.
By spreading money across a number of shares, I can reduce my risk through diversification. £500 is enough to allow me to achieve some diversification.
How I’d start
With money on hand and a plan for the shares I wanted to purchase, I would be ready to start buying shares.
But to do that I would need the right vehicle, like a share-dealing account, or Stocks and Shares ISA. So I would set one of them up, put my £500 into it — and make my first stock market move.
