The idea of getting into the stock market is one that many people have as they try to figure out how they might build wealth. Yet only some of them make the move and start buying shares.
If I had less than £500 and wanted to become active in the stock market for the first time, here is how I would go about it.
1. Decide what success looks like
The first thing I would do would be set my investing objectives.
Those do not need to be ambitious. But it would be helpful to decide why I wanted to start buying shares and what success could look like.
That may change over time, but getting clear with myself from the beginning about what I wanted to achieve ought to help shape my decision-making.
2. Setting up a dealing account
Next I would set up an account for buying shares and put my money in it, ready to use. That could be a share-dealing account or Stocks and Shares ISA.
With lots of choices available, I would take some time to choose one that suited my objectives and financial circumstances best.
3. Learn about the stock market
Lots of people think they understand how the stock market works, regardless of whether or not they have ever owned shares.
But from driving a car to fencing, lots of things can turn out to be somewhat different in practice than they seem in theory.
That is true of the stock market too.
So, before investing a single penny, I would learn more about how it works. How diverse ought my portfolio to be to help manage my risks, for example? What makes a good investment? What are the common warning signs I ought to consider when choosing shares to buy?
My next move would be to pull together a list of shares to start buying, either now or in the future.
Why wait? In a word: valuation.
I want to buy shares in what I think are great companies. But I want to buy them when I think the price is attractive – and obviously great businesses are often not cheap.
As an example, consider Spirax (LSE: SPX).
The pump and steam specialist may not be a household name (and its field may hardly sound like the cutting edge of technology). But it is a highly successful business and has proven its business model can be solidly profitable. Indeed, the firm has the distinction of having raised its dividend per share annually for over half a century.
There are risks (as with all shares). This month’s interim results showed revenues falling 3% year-on-year, although profits were higher. As the company pointed out, a weak economic environment in key markets could continue to act as a drag on performance.
5. Build and manage a portfolio
Still, I would happily start buying Spirax shares – at the right price. For me, the shares still do not look cheap despite falling 27% in a year.
Over time, I would buy when shares on my watch list become available at an attractive price.
First, though, I need to pull that list of shares together!
This post was originally published on Motley Fool
