A lot of people dream about starting to invest in the stock market. Only some of them do however. Many are put off by feeling they lack what it takes, whether that is knowledge, money, or both.
In fact I think it can be better to start investing sooner with less, than later after saving more. That way, starting faster irons out any beginner mistakes and may be less costly.
With £800, here is how I would start buying shares.
Minimising the knowledge gap
While I do not see a lack of lots of money as a hurdle, what about that lack of knowledge?
After all, with highly trained and well-paid professional investors managing billions of pounds in the stock market, going in without the right knowledge could also be costly.
I do not think that level of expertise to do well is needed. But it is important to get to grips with how the stock market works. For example, learning how to read company accounts and getting to grips with how shares are valued are both important steps.
As billionaire investor Warren Buffett notes, sticking to our “circle of competence” also makes sense. Putting your hard-earned money into companies you do not understand is not investing, but speculation.
Finding shares to buy
Even having done that, a company can turn out to disappoint. So I would spread my money over a few different shares. With £800 I could comfortably invest in three or four.
In my mind, I would want to find a share like Nvidia five years ago. If I had invested £200 in the company shares in 2019, my stake would now be worth over £6,100.
But while many stock market novices dream of finding a share like Nvidia, they are few and far between. Again to learn from Buffett, I would try something obvious — not to lose money, and never forget that I was trying not to lose money!
So I would stick to blue-chip companies with proven business models, clean balance sheets and attractive valuations.
An example of a share I’d buy
To illustrate, consider a share I would happily spend a spare £200 buying, namely GSK (LSE: GSK). Its portfolio of pharmaceutical products is sold worldwide, meaning the British company is able to make substantial profits.
Last year, for example, it earned £5.3bn after tax. The shares sell for a shade over £15 each, so with £200 I could probably buy 13, or so.
The value of all shares in circulation (what is known as the market capitalisation) is £62bn, so the price-to-earnings ratio is around 13. That looks like an attractive valuation to me, given the future earning potential of GSK’s proprietary products, strong brands, expertise and distribution networks.
One risk is that a weak product pipeline could see earnings fall.
GSK offers a dividend yield of 3.8%, so hopefully I would earn close to £4 annually for each £100 I invest now, though future dividends are never guaranteed.
One simple move to get started
Putting my ideas into action requires a way actually to invest that £800 in the stock market. So my first step would be to set up a share-dealing account or Stocks and Shares ISA.
The post Here’s how I’d start investing in the stock market with a spare £800 appeared first on The Motley Fool UK.
Should you buy Gsk shares today?
Before you decide, please take a moment to review this first.
Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.
It’s called ‘5 Stocks for Trying to Build Wealth After 50’.
And it’s yours, free.
Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.
And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.
That’s why now could be an ideal time to secure this valuable investment research.
Mark’s ‘Foolish’ analysts have scoured the markets low and high.
This special report reveals 5 of his favourite long-term ‘Buys’.
Please, don’t make any big decisions before seeing them.
Claim your free copy now
More reading
3 recovering UK dividend shares – as picked by professionals
6.6% and 3.9% yields! 2 FTSE 100 stocks I’d snap up for juicy returns
Is GSK’s share price a brilliant bargain after this new vaccines deal?
1 share I’d like to buy in a stock market correction
2 FTSE 100 stalwarts I’d love to add to my Stocks and Shares ISA
C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended GSK and Nvidia. 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.