It does not necessarily take much money to start buying shares for the first time. If someone had a spare £500 to put to work in the stock market, here is how they could get going this week.
After all, while recent stock market turbulence may look scary, I reckon it has thrown up some brilliant potential bargain shares. Those prices may not stick around.
Here, in five steps, is how a stock market newcomer could start buying shares this May.
1. Set up a way to buy shares
It can take time to set up a share-dealing account and transfer money into it.
So a first step would be to set up a share-dealing account, sign up for a trading app, or choose a Stocks and Shares ISA from the many available. Then, put the £500 into it.
2. Learn about the stock market
Fortunes are made in the stock market – but they are also lost.
One advantage of starting to buy shares with £500 is that the potential cost of any beginner’s mistakes is limited. Still, it makes sense to try and avoid such mistakes!
To do that, it is important to start to learn the basics of how the market works.
For example: what sort of shares tend to perform well or poorly, how can we assess their price as investors, and what does risk management look like with a £500 portfolio?
3. Decide on a strategy, then implement it
Based on that, someone could make a choice about what they aim to do in the market.
For example, they could start buying shares in small firms they think have great growth prospects. Or they could plump for high-yield dividend shares. They might prefer to go for investment trusts, or stick to an index tracker fund that mirrors an index like the FTSE 100.
Different investors have different ambitions. I think it makes sense to start buying shares with limited ambition while finding your feet.
4. Start building a portfolio of shares
At this point, the investor could start buying shares.
There is no rush, though. It can pay to wait for the right opportunities to come at the right price. That is part of the essence of long-term investing.
In the current market, one share I think investors should consider is JD Sports (LSE: JD). It has rallied strongly from a low point last month, but still looks cheap to me.
Why do I think it looks cheap?
After all, tariffs could eat into profits and a weak economy might hurt consumer spending power. JD Sports has issued a string of profit warnings over the past year.
Yes, that is all true. But the FTSE 100 company has a proven business model, huge global reach, economies of scale, a large customer base, and powerful brand.
It continues to make money hand over fist — and I do not think the current share price reflects its long-term potential.
5. Keep going, forever
What then?
Over time, the investment case for a share can change. So it makes sense for an investor to monitor their portfolio from time to time, as they may decide to sell a share or buy one.
Five hundred pounds is ample to start buying shares.
But, over time, the more money that can be added, the bigger the portfolio can hopefully grow.
