Dreaming of owning shares is one thing – and many people do it. But actually making a move to start is another thing. Not everyone who dreams about getting into the stock market makes a move to start buying shares.
Doing so does not necessarily even take a lot of money. Here is how someone could do it with a spare £500.
Adopting the investing mindset
In some ways, investing with a small amount of money is different to doing so with a large sum. For example, minimum fees and commissions can eat into the funds at a proportionately higher level. But in many ways, I think investing with a few hundred pounds is actully more similar to doing so with a lot more money than it might look.
So when someone starts buying shares, it can be helpful for them to adopt some of the same principles they may also use later if they have a lot more money to put to work in the stock market.
Start as you mean to go on
For example, diversifying across different shares is a simple but powerful risk-management strategy. Even with £500, that is possible.
It also makes sense to think about what shares actually are. Simply looking at numbers going up and down then putting money in the stock market on that basis is not investing, but speculating.
Instead, I think a better mindset to adopt from the moment the investment journey begins is the same billionaire Warren Buffett takes. He thinks of shares as stakes in a business. So he asks whether the company has a competitive advantage in an industry likely to benefit from strong customer demand.
Buffett also pays close attention to valuation. A good business does not necessarily make for a good investment, so the amount paid for its shares matters.
One share to consider
I can illustrate this with one share I added to my portfolio only this year, although I had been eyeing it for years: Greggs (LSE: GRG).
The baker had not made it into my portfolio previously because the share price seemed too high to me. But a sharp fall brought it to a point where I was willing to buy.
Why do I like Greggs as an investment idea? It has a large target market of potential customers – and one I think is likely to stay that way. People need to eat, after all. With its large estate of shops, a large customer base and some unique products (not an easy thing for a baker to achieve), Greggs has carved out a profitable business.
The share price fall reflects some of the risks the company faces, with sales growth having slowed to a level below some investors’ hopes. Over the long run though, I continue to believe that Greggs’s formula for success can keep working.
From dreaming to doing
Of course, to start buying shares, someone needs a way to do so. A useful first move would be to put the £500 into a share-dealing account, Stocks and Shares ISA or trading app.
