Investing in the stock market for the first time can be scary. This is due to the fact that, unlike a savings account, the value of shares can go down as well as up. Seeing the value of your portfolio fall can certainly be nerve-wracking when you first start out.
That said, these days you can get started in the stock market with just a small amount of money. This means you can dip your toes into the water without risking a lot of savings. With that in mind, if you’re keen to start investing but you’re a little bit worried about losing money, here’s how I’d start.
Open an investment account
The first thing I’d do is open an account with a reputable investment provider, such as Hargreaves Lansdown, AJ Bell, or Interactive Investor. These companies enable you to buy a wide range of different stocks and investment funds at a very reasonable cost.
Personally, I use Hargreaves Lansdown as its website and app are both really easy to use and its customer service is brilliant. If you have a question about investing, you can call them and speak to a customer adviser.
Pick a fund
Next, I’d pick an investment fund to put my money into. The way funds work is that your money is pooled with that of other investors and managed by a professional portfolio manager who spreads the total over many different stocks.
Funds offer investors three main advantages. Firstly, you don’t need to worry about picking stocks yourself, which takes a lot of the stress out of investing. Secondly, they lower your overall investment risk because your money is spread out over many different companies. Thirdly, you can invest in funds with as little as £100 (and you don’t have to pay an upfront trading commission in the same way that you do when you buy individual stocks), meaning they’re ideal for those starting out who only want to invest a little.
I’d choose a ‘global equity’ fund such as Fundsmith Equity or Lindsell Train Global Equity which invest in leading companies all over the world. Both of these funds have excellent long-term performance track records, although past performance is no guarantee of future performance.
Invest a little bit of money
Once I’d chosen a fund, I would then invest a very small amount – perhaps £200 or £500 – and I’d monitor the investment for a few months. This would enable me to get used to the daily fluctuations of the stock market without risking too much money.
Grow the portfolio
Finally, when I was comfortable with the stock market, I’d invest more and build up my portfolio. Here, I’d start spreading my money over a number of different funds for diversification and look to buy some individual stocks as well, in order to boost my returns.
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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.