The dawn of a new year can be a common time to make financial resolutions. No doubt at this time last year many people decided that 2023 would be the year for them to start investing.
How many actually did?
Often, reasons from limited spare cash to a lack of stock market experience put people off making their first move. But endless procrastination achieves nothing. You do not build wealth without setting the ball rolling somehow.
If I had never invested before and had just a few hundred pounds to spare, here is how I would start investing.
Little or large
Beginning investing with £500 as opposed to, say, £50,000 has some disadvantages. For example, many share dealing accounts have a minimum transaction charge. I would need to find the right one for me.
But I also see some advantages to starting investing on a modest scale.
If I make mistakes they will cost me less. I can learn how to become a better investor without risking thousands of pounds in the process.
Basic investing principles
Still, I would start investing by developing good habits employed by some very successful investors.
For example, I would reduce my risk by diversifying across different shares. With £500, I would be able to do that by investing in a few companies.
Another approach could be buying shares in an investment trust. That kind of pooled investment vehicle normally offers investors a chance to buy into a fund that itself owns a range of different shares.
I would also figure out my strategy.
How exactly might I expect to make money? Through buying shares for far less than they are worth? Picking ones that offer lots of income potential in the form of dividends? Choosing companies I thought had excellent growth prospects? All of the above?
Whatever strategy I decided was right for me, the point is that having an investment strategy would help me make choices once I start investing. Knowing what I am trying to do makes it more likely that I might be able to achieve my goals.
Hunting for gold
But whatever strategy suited me best, I would focus on quality.
I would not buy shares just because they sold for pennies. I would not start investing in high-yield shares just because of the yield. I would not buy into Apple or Tesla purely because of their famous brands. I would not buy a share only on the basis of its track record.
In each case, I would start by considering whether I think a business has outstanding long-term prospects. For example, does it have a unique product or service that is likely to see large customer demand?
I would also consider value. Are the shares selling for markedly less than I think they ought to be worth, taking into account the cost of tying some of my money up by buying them and holding them for years?
Buying the right quality at the right price could help me start laying the foundations to build wealth in the stock market, beginning with £500.
