January turns many minds to dipping a toe in the stock market. While it can seem appealing to start investing, a lot of people delay and delay – then never end up investing at all.
If I had never bought shares and had a few hundred pounds I could spare to invest, I would start investing today.
Here, I explain why – and how.
Why wait?
Investing is a long-term activity. The longer the timeframe I have in which to invest, the more patient I can afford to be as I wait for my investment choices to prove themselves.
Imagine a share that grows at an average compound rate of 4%. After a year, it would have increased by 4%. After 50 years, however, it would be worth almost 600% more than I paid for it.
Time can work in an investor’s favour. I would therefore start sooner rather than later if I was a first-time share buyer.
On top of that, I think right now is an attractive time to buy certain shares.
Some British shares look like bargains to me. Blue-chip companies with proven business models like Legal & General are trading on a low price-to-earnings ratio (basically their share price relative to how much they earn per share in a year).
How I’d start
My first move would be to put the £300 into a share-dealing account or Stocks and Shares ISA. That way, it would be ready to invest as soon as I identified some promising shares to buy.
To find shares, I would stick to looking at companies with businesses I felt I understood.
That might be something like Greggs or J D Wetherspoon where I am a customer. Or it could be a company like Shell or M&G where I felt I understood the business model clearly.
I would be looking for a business that had a large customer base and something to set it apart from competitors.
But while that might mean it is an attractive business, that is not the same thing as making an attractive investment. For that, the price I pay for the shares matters.
So I would take time to learn about the different ways investors understand valuation to help me choose the best approach for my own selection. As an investor, there is no such thing as having too much information.
Building a portfolio
I would start as I meant to go on. One example would be managing my risks. One approach is diversifying across different shares to limit the impact on my overall portfolio of one of them performing poorly. £300 would let me diversify across a couple of different shares, at least.
I would try to begin building a portfolio of blue-chip companies I thought were attractively priced and had excellent long-term potential.
Fortunately, I think today’s market offers quite a few such opportunities.
