£500 spare? Here’s how I’d start investing today

This Fool lays out the methods he’d use to start investing in the stock market with just £500. He also tells us which stock he’d buy now.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Contrary to belief, we don’t need thousands of pounds to start investing. In fact, we can start with very little. Take Warren Buffett as an example. He started out at age 11 with just a few dollars. Now he has a fortune worth over £120bn.

So I’m confident that with £500, I could kickstart a successful investment journey. There are however, a few things to consider.

Forming good habits

Firstly, I’d lay out what I plan to achieve. I did this when I began investing and it has proved to be incredibly beneficial. For me, I’m investing for my retirement. I know by starting now and giving myself more time, I’m more likely to achieve my goals.

Volatility in the stock market is impossible to avoid. But over the long run, the FTSE 100 has returned 7% a year on average. I know the best way to reap the rewards of the market is to play the long game.

I also target companies that offer a dividend yield. That way, I can start generating a passive income. Later down the line, I can use this income to top up my pension, or live a more comfortable life.

There are other steps I’d take with an initial £500. Diversification is key. As such, I like to spread my money across different companies and industries. For example, I’d look to buy five businesses in a range of sectors and invest £100 into each. I could also look to target vehicles such as investment trusts.

Finally, I’d make sure to add to my initial lump sum. Whether it be weekly or monthly, I’d ensure I got in the habit of saving additional money and investing it. This way, I can benefit from cost pound averaging, which beats me trying to time the market.

Sticking to what I know

When it comes to selecting my stocks, I’d take a page from Buffett’s book. He only invests in companies he understands. I like to do the same.

Take Unilever (LSE: ULVR) as an example. The stock has got off to a strong start in 2024. During this time, it’s up 5.4%.

What I most like about Unilever is it’s simple to understand how the business makes money. The products it sells are household names and everyday essentials, such as Dove and Ben & Jerry’s.

Last year, despite a tough economic backdrop, the business managed to grow total underlying sales growth by 7%. For its 30 ‘Power Brands’, sales grew 8.6%.

To add to that, it provides a yield of 3.7%, which is around the FTSE 100 average. Unilever also recently announced a new share buyback scheme worth up to €1.5bn, which shows its willingness to return value to shareholders.

Of course, investing in Unilever shares doesn’t come without risk. The cost-of-living crisis may see consumers look for cheaper alternatives than the products the business sells. Inflation could also eat into its profit margins.

However, its strong results last year highlight the resilient nature of the business. If I had money to invest, it’s companies like Unilever I would be looking to buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »