Ever thought about getting into the stock market but put it off? Lots of people want to start buying shares but procrastinate, for a variety of reasons.
A common one is the idea that they need more money before they can start investing. In reality, though, it does not take a lot of money to make some first moves in the stock market.
Here is how someone could do that with a spare £500.
1. Put money aside to invest
Spare money often does not stay that way for long, with all of life’s financial demands making themselves known.
So a useful first step would be to put the £500 aside to start buying shares, for example in a share-dealing account, Stocks and Shares ISA, or trading app.
It could also be worth considering setting up a regular contribution, to boost the funds available to invest over time.
2. Figure out the market basics
It can be a costly mistake to start buying shares without understanding even the basics of how the stock market works in practice.
Identifying a brilliant business is not necessarily enough: things like valuation and balance sheets can mean a great business is not necessarily a great investment.
Nobody knows everything when they start out (if ever) and experience can be a great teacher – but it is helpful at least to get to grips with some of the most important concepts before dipping a toe in the market.
3. Start identifying shares to buy
There is no need to invest the £500 straight away. It makes sense to wait for opportunities to buy into brilliant businesses at attractive share prices.
Such opportunities may present themselves immediately – or they may require patience. I believe in sticking to what you know when investing, so not everyone spots the same opportunities even in the same market.
One opportunity I think investors should consider in today’s market is baker Greggs (LSE: GRG).
A lot of the challenges facing the company are those facing the economy more broadly: uncertain consumer demand, higher National Insurance and wage costs, and increasingly quiet high streets.
Greggs has other, specific, risks too, A profit warning last summer raised questions about how effective the chain is at matching its offering to the weather – and I see that as an ongoing risk.
Still, the Greggs share price has been beaten down to what I see as potentially being a bargain level.
After all, this is a well-known brand with thousands of outlets. It has economies of scale, a compelling value proposition for customers, and also a proven business model.
4. Starting to buy
Identifying good investment ideas is one thing. But the next step is to actually start buying shares.
A simple but important risk management principle in the stock market is diversification: not putting all your eggs in one basket.
With £500, this can be tricky – but it is manageable and also important.
5. Stay the course
When people start buying shares, they sometimes expect dramatic price movements.
That can happen but, sometimes, little seems to happen. As a buy-and-hold investor, I am fine with that.
Avoiding the temptation to trade for no real reason is a discipline. I review my investments occasionally but always aim to take a long-term approach.
