How much money do you need to start investing?
My own answer to that question would be: not much.
Warren Buffett has been one of the most successful investors in history. Yet he started buying shares as a schoolboy with his earnings from a paper round. Starting sooner rather than waiting has lengthened the timespan of Buffett’s career, allowing him to benefit from taking a long-term approach to investing.
There are some disadvantages to starting investing on a small scale, such as the possibly higher cost of dealing fees and charges as a percentage of what I invest. That is why I would start by taking time to find the right share-dealing account or Stocks and Shares ISA to suit my own circumstances.
But I think investing with under £500 could also offer me some advantages. I could begin today rather than waiting. A smaller sum invested could also mean any mistakes or disappointing choices I make could end up being less costly than if I was investing larger sums.
Making some initial moves
Indeed, risk management would be top of my mind.
When some people start investing, they just focus on the potential rewards. But being realistic about risks is important too. As a novice investor in the stock market, there are lots of possible errors that one might not even be aware of.
One simple risk management technique is diversification. Imagine I had £400 to invest. I could split it across several individual shares. I might also decide to invest in a pooled investment vehicle like an investment trust such as Scottish Mortgage.
A trust can give me some diversification even when investing a fairly small amount, although I would still pay close attention to what shares a trust owns. Scottish Mortgage has done well in the past by investing in growth shares like Tesla, but I also see risks in its tech-heavy portfolio.
Finding shares to buy
If I did want to buy individual shares, I would follow Buffett’s emphasis on staying inside one’s circle of competence and stick to businesses I felt I understood and could analyse.
An example is Unilever (LSE: ULVR). I see resilient long-term demand for the sorts of products for daily life manufactured by the FTSE 100 company. As it owns premium brands such as Marmite, it is able to increase prices while retaining a lot of customers.
That is known as pricing power and can be good for a company’s profitability. In its most recent full-year financial report, the company reported post-tax earnings of €8.3bn on revenue of €60.1bn.
I do see risks with a share like this. For example, inflation could eat into profit margins for a company that manufactures so many products and so buys vast quantities of ingredients and packaging materials.
But if I had spare cash to invest, Unilever is the sort of share I would be happy to buy. That is true with my experience owning shares, but would also apply if I was to start investing for the first time.
The post I’d start investing with less than £500, like this 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 Tesla and Unilever 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.
