How much money does it take to start investing in the stock market?
One might equally ask, how long is a piece of string?
After all, investing in the stock market does not require a large amount of money. Indeed, not only is it possible to start investing with just a few hundred pounds, I actually see some potential advantages to doing that rather than waiting for a bigger sum to get going.
It can mean one starts sooner. Another good thing I see about investing with less not more is that any beginner’s mistakes would hopefully be less costly.
If I had never bought shares before but wanted to start investing and had less than £500 to spare, here is how I would go about it.
Getting the basics in place
My first move would be a basic administrative one: putting my money in an account that would let me buy shares.
So I would set up a share-dealing account or Stocks and Shares ISA. With lots of choices available, I would take time to find one that suited me best.
Too high dealing or administration fees could eat into £500 proportionately more than if I was investing a bigger amount, after all.
Setting objectives and learning some basics
Next I would decide what I wanted to achieve.
Even if my goal seems simple – making money – there are different ways I might try to achieve that. For example, I could focus on trying to find companies I reckon have great growth opportunities. Alternatively, I may be more attracted by the dividends offered by some shares.
The stock market is not a simple place and it is easy to make mistakes. So I would aim to start investing only once I felt comfortable I had at least a basic grasp of important concepts, from diversifying my portfolio (even with a few hundred pounds this is possible) to share valuation.
Making my first move
The reality about investing is that it can often feel quite boring. As a long-term investor not a trader, I put my money in a share then often hold it for years. During that time, it may go up, down – or almost nowhere at all.
That suits me fine and I aim to buy into great companies with an attractive valuation then let time work its magic.
If I was to start investing now, I would take a conservative approach and buy a blue-chip share with a proven business model and what I felt was comparatively low risk (although of course any investment carries some risk). As an example, consider a share I own: Diageo (LSE: DGE).
As the owner of well-known brands like Guinness in a market I expect to see long-term demand, Diageo has a proven business model. Such brands help set it apart from rivals and give it pricing power, which in turn can fuel profits. Last year, for example, Diageo made $4.2bn of profit after tax, on turnover of $27.9bn.
That turnover was a bit lower than the prior year and there is a risk that ongoing economic weakness could hurt sales.
That might explain why the Diageo share price has fallen 23% in five years. I think the current valuation is attractive and plan to hold my shares.
This post was originally published on Motley Fool
