Lots of people dream of becoming a stock market investor. But many of them end up missing out on the opportunity. But it is easy to get started. If I wanted to start buying shares for the first time now and had a spare £500 to invest, here is what I would do.
The ‘why’
First, let me explain why I would actively choose to step into the market.
It can be tempting to think that investing is something for later in life or only to be done with large sums of money.
But I see investing as a long-term and affordable activity (long term both in relation to learning about it and also hopefully reaping rewards). So my approach is that the sooner one starts, the better.
Many people make errors when they start buying shares. That can be painful, but it helps them learn and hopefully pave the way for more lucrative choices in future.
That is why I think starting with a few hundred pounds can actually end up being a smarter choice than waiting and hoping to have a much bigger pot of money to spare later on.
How I’d begin
Before deciding which shares to buy, I would put my £500 into a share-dealing account or Stocks and Shares ISA. That way, it would be on hand for me to invest once I decided what to do with it.
Next, I would learn about the stock market. Things like commissions and fees may sound boring, but they can make a big difference to one’s long-term performance as an investor.
Finding shares to buy
Few businesspeople would buy a company without knowing anything about it. Yet that is what a lot of investors do. To me, that is not investment but speculation.
So I would look around for listed firms I felt I understood and that had attractive commercial prospects. For example, popping into Greggs regularly might give one some broad sense of the business model and its appeal.
Valuation matters!
Building on that by studying the company’s financial reports could help give a sense of the numbers.
One thing that trips up some investors is not studying a company’s balance sheet. After all, if a business has to service a lot of debt, that could swallow up a lot of its profits or even all of them.
Another crucial concept I would want to get my head around in order to start buying shares is valuation.
Take a company like Tesla. It is possible to be very optimistic about the business outlook for the carmaker, but still feel the shares are overvalued (although some investors disagree and think Tesla is undervalued).
Even a brilliant business can make a bad investment if one overpays for its shares.
Building a portfolio
I would then use my £500 to start buying shares.
To reduce my risk, I would not put all of the money into one business, but rather would diversify across several different shares. For example, I might invest £250 each in a pair of companies in different industries.
Before doing that, though, I would do my homework to try and discover what I thought were attractively priced shares in companies set to capitalise on great opportunities.
