The long, warm days of summer might not be an obvious time to start investing. The old stock market adage suggests to ‘go away in May’. Over the summer, life can offer more immediate joys than thinking about how to build a stocks and shares portfolio.
But in some ways I think summer can be a good time for a novice investor.
The City can be quieter and markets slower, there is often time for research, and starting now means investing sooner rather than waiting for a later date and potentially seeing yet another year pass by without putting a pound into the market.
If I wanted to start investing this July with £100 a week, here is how I would go about it.
Regular saving habit
Putting aside £100 each week into a share-dealing account or Stocks and Shares ISA would allow me to build up £5,200 to invest each year.
This weekend sees the start of the second half of the year. So, beginning now, I ought to be able to save around £2,600 before the end of 2023.
Such a disciplined habit could help me as I aim to build wealth through owning shares. It would also give me enough funds to let me diversify across different companies. That is a simple but important risk diversification strategy for novice investors as well as very experienced ones.
Consider my objectives
Different people invest for their own reasons.
Some want the value of the shares in their portfolio to increase over time. Others are more focussed on building second income streams through dividends. Some investors may simply want broad exposure to a cross-section of blue-chip companies.
Before I decided how to start investing the money I saved each week, I would get clear about what my objectives are.
If I was focussed on dividends, I might go for companies I felt had strong income prospects but possibly limited growth opportunities. Tobacco shares are an example.
By contrast, if I was focussed on growth, I may be happy to invest in shares that do not currently pay dividends, like Tesla.
Learn about valuation
I think there are two key elements to successful long-term investing.
One is identifying attractive assets, which in the case of the stock market means shares. The other crucial component is paying less for those assets than they ultimately turn out to be worth.
A common mistake people make when they start investing is simply to go for companies that they think will be the next big thing. The potential problem is that, even if a company is indeed the next big thing, that does not means buying its shares will be a rewarding move.
That is why valuation matters. Learning how to value shares is an important step I would take. In fact, I would not start investing before I understood at least some basic concepts about valuation.
Choose carefully
Once I felt ready to invest, I would focus on proven blue-chip businesses I felt I understood.
Rather than rushing in, I would keep saving my £100 weekly and take time to find companies I reckoned met my long-term objectives and had an attractive valuation.
Then, I would start building my portfolio.
