Thinking about getting into the stock market and actually getting into it are two different things. Lots of people harbour an ambition to start buying shares, but not all of them will successfully take action to bring that dream to life.
One reason can be a lack of funds.
The thing is, though, that it does not necessarily take a lot of money to start buying shares. In fact, I think it can be better to start with less rather than more. That way, any beginner’s mistakes will hopefully be less costly.
If I had a spare £600 and wanted to start investing in shares, here is how I would go about it.
Setting up a share account
My first move would be to find a way to buy (and sell) shares. So I would set up a share-dealing account or Stocks and Shares ISA. There are lots of choices on the market – I would aim to find the one that made most sense for my own needs.
I would put the £600 into my account then take some time learning about shares.
For example, a lot of people start buying shares by investing in what they see as a great business. But a great business can turn out to be a lousy investment if one pays too much for its shares. So getting to grips with basic but important concepts such as valuation is important before buying a single share, in my opinion.
Setting an investment strategy
Armed with this knowledge, I would then decide what my investment strategy was.
For example, if I wanted to build passive income streams, I may want to buy dividend shares. If capital gain potential was my reason to start buying shares and I was not bothered about dividends, that could mean I leant more towards growth shares.
Either way, in the beginning I would err on the side of caution.
Yes, the stock market can be rewarding – but it also carries risks. So I would stick to large blue-chip companies with proven business models, large customer markets, and healthy looking balance sheets.
Finding shares to buy
Even then, things might not work out as planned. That could be because of a mistake in my judgement, but it could also just be a company encountering unforeseen circumstances outside its control. So I would spread my money over a range of companies. With £600 to start buying shares, I could invest in three or four different businesses.
An example of what I would be looking for is J D Wetherspoon (LSE: JDW).
Demand for social meeting places is likely to endure. Many pubs are closing, so declining demand is a risk to Spoons’ profits. On the other hand, a consolidating market can favour the strongest players – and I feel Spoons is just that. Its low price formula has won it legions of regular patrons.
The company is profitable and I think it could grow earnings in coming years. Its sales now are substantially higher than a few years ago when it actually had more pubs, underlining its relentless focus on productivity.
Weaker consumer spending could lead to fewer pints being pulled. But Spoons has a strong position in a market where I expect to see long-term demand.
The post I’d start buying shares with £600 like this appeared first on The Motley Fool UK.
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C Ruane has positions in J D Wetherspoon Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.
