With a new season starting in March, it could be time for some spring cleaning. Some spring cleaning of one’s finances can be helpful too. New Year’s resolutions such as a plan to invest more or start buying shares may now have languished, unrealised, for a couple of months.
But it is possible to start investing in the stock market even with relatively modest funds.
If I had a spare £280 at the moment and had no stock market experience, here is how I would start buying shares in the coming weeks.
Setting up a dealing account
My first move would be to handle the administrative side of things.
So I would set up a share-dealing account or Stocks and Shares ISA to put my money in, ready to invest it when I found shares I wanted to buy.
With a few hundred pounds at first, dealing fees and commissions could eat into my funds. So I would take time to find the account that best suited my personal circumstances.
Learning about the stock market
Here is a question: is Apple (NASDAQ: AAPL) a good share to buy?
My answer would be: that depends. Not only that, but what might be a good move for one investor may not be right for someone else.
Apple does have a number of characteristics that I look for when buying shares. For example, the potential (and actual) user base for the sorts of products and services it sells is vast and is likely to remain that way.
Thanks to its brands, technology, and installed customer base, Apple has an advantage over competitors. That let it make a phenomenal $97bn in profits last year.
But a lot of other investors, including major shareholder Warren Buffett, also see attractions in the business model of the tech giant. Its current valuation is 28 times its annual profits.
So, although I like Apple as a business, I would not buy its shares for my portfolio at the current price. I simply think it is too expensive.
Concepts such as valuation matter enormously to one’s long-term performance as an investor.
So I would only start buying shares once I had learnt about how the stock market works, including concepts such as valuation.
Building a portfolio
Another important aspect to investing is managing risk.
Many people start buying shares focused on how much money they might make if things go their way. But even a brilliant-seeming investment can disappoint. So, savvy investors seriously assess possible risks, instead of just salivating about potential rewards.
One simple form of risk management is diversification: basically not putting all of your eggs in one basket.
Even with £280 I could – and would – diversify across two or three different shares, exposed to different parts of the economy.
Looking to the future
Over time, I think a few basic moves when I start buying shares could help increase my odds of financial success over the long term.
Just thinking about it would not do that, though. Taking action is necessary!
