Getting started in the stock market takes some people years. Others never make their investment dreams a reality at all. But it can be possible to start investing even without large sums of money.
In fact, I think there can be benefits to starting on a small scale.
Investing has a learning curve. While building wealth is the goal, if I did make beginner’s mistakes I would prefer them to be on a relatively small scale.
With £600 to spare, here is how I would start investing.
Setting up an account
My first move would be to set up an account I could use to buy shares. There are lots of different types available, so I would do some research to decide what one might suit me best. That might be a share-dealing account or Stocks and Shares ISA, for example.
Once I had set up the account, I would put my £600 in so it was readily available to invest once I had identified some shares I wanted to buy.
Getting to grips with the stock market
Before even looking at shares though, I would take some time to understand how the stock market works.
Some things may seem obvious, but others can trip people up when they start investing. For example, a good business is not necessarily a good investment, if its shares are overpriced. Learning about valuation can therefore be critical for successful investing.
Finding shares to buy
At some point, it will be time to find shares to buy. Instead of finding one particular share and putting all £600 into it, I would spread the funds over several different shares. That is a form of risk management known as diversification.
To find shares, I would stick to industries I felt I could understand and that I expect to experience high customer demand in future. I would then look for a company that had a competitive advantage within that industry.
If I found businesses I liked, I would then consider their valuation.
A share I recently bought
As an example, consider one share I have bought recently: Reckitt (LSE: RKT).
The company is the manufacturer of branded products like Finish dishwashing detergent and Nurofen pain relief tablets. The market for such everyday products is large and I think it is likely to remain that way. Having invested over decades to build brands that are known and trusted by consumers, Reckitt can charge a premium price for them.
The share price is almost a fifth lower now than it was at the start of the year, after a lawsuit in the US raised investor concerns that the company could face a large bill for product liability claims.
Whether that actually happens remains to be seen. In the long term though, I think the company’s proven business model is attractive.
The FTSE 100 firm is highly cash generative and pays an annual dividend equivalent to 4.3% of the current share price.
