How much money does it take to start investing in the stock market?
One might equally ask, how long is a piece of string?
After all, investing in the stock market does not require a large amount of money. Indeed, not only is it possible to start investing with just a few hundred pounds, I actually see some potential advantages to doing that rather than waiting for a bigger sum to get going.
It can mean one starts sooner. Another good thing I see about investing with less not more is that any beginner’s mistakes would hopefully be less costly.
If I had never bought shares before but wanted to start investing and had less than £500 to spare, here is how I would go about it.
Getting the basics in place
My first move would be a basic administrative one: putting my money in an account that would let me buy shares.
So I would set up a share-dealing account or Stocks and Shares ISA. With lots of choices available, I would take time to find one that suited me best.
Too high dealing or administration fees could eat into £500 proportionately more than if I was investing a bigger amount, after all.
Setting objectives and learning some basics
Next I would decide what I wanted to achieve.
Even if my goal seems simple – making money – there are different ways I might try to achieve that. For example, I could focus on trying to find companies I reckon have great growth opportunities. Alternatively, I may be more attracted by the dividends offered by some shares.
The stock market is not a simple place and it is easy to make mistakes. So I would aim to start investing only once I felt comfortable I had at least a basic grasp of important concepts, from diversifying my portfolio (even with a few hundred pounds this is possible) to share valuation.
Making my first move
The reality about investing is that it can often feel quite boring. As a long-term investor not a trader, I put my money in a share then often hold it for years. During that time, it may go up, down – or almost nowhere at all.
That suits me fine and I aim to buy into great companies with an attractive valuation then let time work its magic.
If I was to start investing now, I would take a conservative approach and buy a blue-chip share with a proven business model and what I felt was comparatively low risk (although of course any investment carries some risk). As an example, consider a share I own: Diageo (LSE: DGE).
As the owner of well-known brands like Guinness in a market I expect to see long-term demand, Diageo has a proven business model. Such brands help set it apart from rivals and give it pricing power, which in turn can fuel profits. Last year, for example, Diageo made $4.2bn of profit after tax, on turnover of $27.9bn.
That turnover was a bit lower than the prior year and there is a risk that ongoing economic weakness could hurt sales.
That might explain why the Diageo share price has fallen 23% in five years. I think the current valuation is attractive and plan to hold my shares.
The post I’d start investing with under £500 like this appeared first on The Motley Fool UK.
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C Ruane has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. 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.
