How much money does it take to start investing? Some think the answer is “a lot”. However, it can take a long time to save up large sums of money. And starting on a small scale can mean beginner’s mistakes are less costly.
Although I am no longer a novice, this is still the approach I take. If I invest in a company for the first time, I prefer to do so on a modest scale. As I get to know it better, I then decide whether or not to increase my stake.
That also explains why, based on my experience, were I to start buying shares for the first time again, I would do so using a smaller not a bigger sum of money.
Using £500 to get going in the stock market may offer me less potential for reward than if I used £5,000 – but it also means much less money would be at risk!
The practicalities of getting started
How much to invest is only one of the considerations people need to make when they start investing.
Another is how to invest on a practical level. I am happy using a Stocks and Shares ISA. But as there are lots available, I spend time to try and choose one that best suits my own financial needs and objectives. The same applies when I invest through a Self-Invested Personal Pension (SIPP) or share-dealing account.
It is also important to get to grips with how the stock market works. A great business does not necessarily make for a great investment. If I pay too much, I could end up seeing my shares fall in value even though the company does well.
So things like learning how to value shares are necessary activities when learning how to invest, as far as I am concerned.
Finding shares to buy
It is tempting to start investing by looking for one amazing share that looks set to explode in value. If investing just a few hundred pounds to start, the temptation to stick to one choice can be even stronger. That is the opposite of my approach. No matter how big or small an investment portfolio is, I think diversification is always an important risk management tool.
I also prefer to stick to proven, blue-chip businesses. Even if their short-term growth opportunities may not seem explosive, over the long run such shares can turn out to be lucrative.
Investing for the long term
As an example, one share I think investors should consider is Reckitt (LSE: RKT). The business has had a challenging few years. Indeed, the Reckitt share price is now 20% lower than it was five years ago.
That may not sound like the stuff of investor dreams. But past performance is not necessarily a guide to what will happen next. The price fall has brought Reckitt down to what I think is a more attractive valuation when considering the FTSE 100 company’s long-term prospects.
It reflects risks such as legal costs for ongoing infant formula lawsuits – something I still think may hurt future profits.
But with a large addressable market, strong brands such as Vanish and Woolite, and a large existing customer base, I expect the firm has the potential to make large profits in coming years.
The post Here’s why I’d rather start investing with £500 than £5,000! appeared first on The Motley Fool UK.
AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!
Buckle up because we’re about to dive headfirst into the electrifying world of AI.
Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.
If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?
Get your free AI stock pick
More reading
If I’d invested £10,000 in an S&P 500 index tracker in 2009, this is how much I would have today!
3 ways to boost a SIPP
What FTSE shares might raise their dividends annually for the next half century?
Down 23%, this FTSE 250 stock could have further to fall
Here are 2 potentially top UK shares to consider buying before 2025
C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser Group 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.
