£3,000 in savings? Here’s how I’d use that to start investing today

Christopher Ruane uses his market experience to explain how he’d start investing on a limited budget for the first time.

| More on:
Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

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.

Dreaming of buying shares is one thing. Actually making the move to start investing is another.

It need not be complicated. Nor does it necessarily take years and years of saving to build up a huge investment pot before getting going.

In fact, I think there can be benefits to starting sooner rather than later. It gives one a longer timeframe in the markets. As a believer in long-term investing I think that can be a huge advantage. It also means that any beginner’s mistakes could be less painful than if bigger sums were involved.

If I had a spare £3,000, here are the moves I would make to start investing.

Decide on an investing strategy

I would think about what my objectives in the stock market are.

For example, do I want to buy into growth companies in the hope of finding the next Tesla or Nvidia? Am I more focused on the potential passive income streams offered by owning high-yield dividend shares like M&G and Imperial Brands? Or might a combination of both suit my objectives?

While figuring out my objectives, I would also take some time to learn about how the stock market works. What makes a good business does not necessarily make a good investment.

That depends, in part, what price I pay for its shares. So getting to grips with concepts like how to value shares is important before I start investing.

Getting ready to invest

Another, practical, move I would take is to put my £3,000 into an account that would let me buy shares.

That could be a share-dealing account or Stocks and Shares ISA, for example. There are lots of options. I would look into the alternatives and choose one that seemed best for my own needs.

Building a portfolio

My next move would be to start building a portfolio, by choosing different shares to buy.

Why not just put all my £3,000 into what seemed to me like the best idea? The problem is that what seems to me like a great idea – and indeed may be – can suddenly be seen in a very different light if circumstances change.

Even the best company can run into unforeseen challenges. By diversifying my portfolio, I could reduce the risk to my £3,000 if one of my choices turns out poorly.

Finding shares to buy

To choose shares to buy for that portfolio as I start investing, I would stick to what I know.

For example, if I was a regular shopper at Greggs (LSE: GRG), I would have an idea of how busy its shops are and how satisfied customers seem to be.

I could add to that anecdotal and observational knowledge by reading the company accounts. That would also let me see things like how much debt the company had on its balance sheet (none: it ended last year with net cash and cash equivalents of almost £200m).  

A competitive advantage in a market likely to benefit from high demand can help a business do well. Greggs has that, from unique products to a large shop network.

But it also faces risks, from wage inflation eating into profits to cash-strapped consumers cutting back on takeaway foods.

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.

C Ruane has positions in M&g Plc. The Motley Fool UK has recommended Greggs Plc, Imperial Brands Plc, M&g Plc, Nvidia, and Tesla. 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

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »

Investing Articles

How I could earn a second income worth £35,000

Millions of us invest for a second income. Our writer explains how he's making it work and shares tips for…

Read more »

Investing Articles

3 ways Labour could impact the Rolls-Royce share price

Labour have swept to power on a pro-worker, pro-business ticket. But how could the new government influence the Rolls-Royce share…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings at 35? I’d use Warren Buffett’s method to try and build massive wealth

Warren Buffett made most of his multi-billion-dollar fortune after turning 50. So what was his trick to building enormous wealth…

Read more »