Putting off getting into the stock market until more money is accumulated: good idea or bad idea? A lot of people do not start investing because they want to save more money first. I understand that logic, but procrastination can mean never getting started.
On top of that, a lot of stock market beginners make some rookie errors. If I had never bought shares before, I would rather start investing by dipping my toe in the water than making a big splash.
Yes, that might not make me rich (yet) – but it could also mean that any beginner’s mistakes I made were less costly.
So if I had £380 and wanted to start buying shares for the first time, here is what I would do.
Getting ready to invest
In some ways, making the first move is the simple bit. I would get the administrative side of things in order to be ready to start investing.
So for example, I would set up a share-dealing account or Stocks and Shares ISA then put my £380 into it.
After that, I would learn about how the stock market works. A great business is not always a great investment. I would want to start investing as I hoped to go on, by making great investments.
Finding shares to buy
It might seem that £380 might not buy me many shares. But putting all my eggs in one basket can be risky. So even with a modest sum, I would want to diversify across a number of different shares.
That is possible even with just a few hundred pounds, though I would be mindful of the dealing costs if I put it into an array of different shares.
One option to try and spread my risk without buying lots of different shares would be to invest in a share like City of London Investment Trust (LSE: CTY).
An investment trust is basically a form of pooled investment. So City of London owns shares in dozens of companies and by owning its shares I could indirectly gain exposure to them.
If things go well and fund managers make strong investment choices, the trust’s pool of mostly British blue-chip shares could hopefully do well. On top of that, the trust pays a dividend. It has raised that dividend every year for over half a century although, as always in the stock market, past performance is not necessarily a guide to what will happen in future.
Sluggish UK economy
With the UK economy looking sluggish though, I see a risk that ongoing weakness could mean City of London’s share price does not even grow in line with inflation.
In the past few years its track record has been modest.
Still, if I had spare cash to invest, I would consider buying the shares.
An alternative would be to start investing in individual shares. Even against a lacklustre economic backdrop, some companies will likely do well. Buying them while investors’ expectations are muted could potentially mean I bag a long-term bargain, if I choose the right shares.
This post was originally published on Motley Fool
