The idea of putting money into the stock market and building a portfolio of shares that can hopefully generate wealth over time is a common one. Yet a lot of people miss the opportunity. They never start investing, perhaps because they see it as something for future when they have more money.
But investing does not necessarily require having a lot of money upfront. Indeed, for many people the whole point of investing is to try and turn a modest amount of money into a bigger one!
Here is how I would start investing with a spare £350.
Getting ready to buy shares
My first move would be getting things in place so I would be ready to buy shares when I found some I liked.
To do that, I would set up a share-dealing account or Stocks and Shares ISA and put my £350 into it.
Understanding the stock market
Some people think that the best way to start investing is to buy into what they see as great companies. For example, like many investors I like the long-term prospects for Apple (NASDAQ: AAPL).
The company benefits from an iconic brand, large customer base, patented technology and ecosystem of products and services.
I think that combination of factors could help Apple make large profits for years and even decades to come. Last year, for example, the firm made $97bn in profits. To put that in perspective, it is the equivalent of almost £10 in profit for every human being on the planet, in just one year!
But while I like Apple as a business, a great business does not necessarily translate into a rewarding investment.
Apple has a market capitalisation (the value of all its outstanding shares) of $2.8trn.
If Apple goes from strength to strength, it may grow into that valuation. But what if some risk materialises that hurts profits, from a price war to being leapfrogged by competitors when it comes to technology?
Before I was to start investing, I would want to learn about the basics of how the stock market works – including ideas such as how to value companies.
Building a portfolio
Once I found shares I liked at a price I thought offered me good value, I would begin building my portfolio.
Why not just put all my money into what I thought was the most attractive share? Even the best company can run into unexpected difficulties. By spreading my investment, I could get some measure of diversification.
£350 is enough for me to diversify across two or three different shares. If I bought shares in one investment trust, that would also offer me some diversification.
Could I build wealth over time?
For that to happen, one or both of two things needs to happen.
One is for the price of the shares I own to rise. The other is for me to receive dividends, a payment made by some companies to owners of their shares.
From a small acorn of £350 today, I could take steps to try and end up with investment oaks in future. But to do that, thinking about buying shares is not enough – I actually need to start investing!
