The idea of buying shares and trying to build wealth can be appealing. But a lot of people start buying shares only late in life, if at all. By delaying, they may miss out on all manner of opportunities over the decades.
It does not take a lot of money to start buying shares. If I had never dipped my foot in the stock market and wanted to begin, with only a few hundred pounds to share, here are the steps I would take.
1. Setting aside some money to invest
My first move would be putting the £300 into an account I could then use to buy shares.
So I would look at the different options of share-dealing accounts and Stocks and Shares ISAs, then choose one that felt most suitable for my own circumstances and investing objectives.
£300 might not sound like a lot in the stock market. But it is enough to begin investing and in fact is sufficient to let me diversify across several shares from the day I start investing. That is a simple but important risk management technique.
2. Learning about shares
Next, I would learn about how shares and the stock market work in practice. One common mistake investors make when they start buying shares for the first time is confusing a good business with a good investment.
Take Apple (NASDAQ: AAPL) as an example. I think it is a good business and, at the right price, could well be a good investment. But I have no plans to buy any shares in the tech giant right now, nor do I own any already.
Why? In a nutshell, valuation. Apple has a large target market that is likely to remain big. It has a sizeable base of customers and I think that could continue to be true, thanks to its strong brand, proprietary technology and unique ecosystem of products and services. It is also hugely profitable.
But Apple shares are currently valued at around 35 times the company’s earnings. That looks pricey to me for the business as it is, let alone considering future risks ranging from growing competition from Chinese brands to the possibility of a weak economy hurting demand for pricy phones.
I invest to make money. If I pay too much even for a great company, I could end up owning shares that are worth less than I paid for them.
3. Buying and holding quality shares
My next move would be to decide my initial investing strategy (for example, the balance between growth and income I wanted to target with my portfolio) then start finding shares to buy.
After that, I would buy them if I could do so at what I thought was an attractive valuation, then mostly hold tight.
As an investor, not a trader, my timeframe is a long-term one. So I would be looking to hold shares for years, hopefully benefitting from rising valuations and perhaps dividends… if I had picked the right ones and bought at the right price.
The post Here’s how I’d use £300 to start buying shares in 3 simple steps appeared first on The Motley Fool UK.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. 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.
