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You don't necessarily need to have a lot of money to start investing in the stock market.
In fact, I think there may be advantages to starting earlier and on a smaller scale rather than spending years saving large amounts to invest. It may mean getting into the markets earlier, perhaps years earlier. It would also mean that beginner mistakes would be less painful financially.
So what are three steps you would take today to get started with a small amount of cash?
1. Find out what creates value
It may seem obvious, but the key to successful long-term investing is to pay less (ideally much less) for things than they are worth.
In the stock market, that means not confusing a successful business with a rewarding investment.
What is the difference?
Partly it's about spotting the long-term prospects for success a company may (or may not) have, rather than whether it's performing well right now, but it's also about valuation.
Carry Apple (NASDAQ: AAPL) as an example. Looking at its share price performance over the past five years, the tech giant has been incredibly rewarding for investors.
Yet one investor other than billionaire Warren Buffet has been selling hundreds of millions of shares of Apple stock in recent months (though, to be fair, he retains a significant stake). Why?
We don't know the answer.
However, past results are not necessarily a guide to what will happen in the future. Apple still enjoys strengths such as a large addressable market, an iconic brand and a sizable installed user base. However, at 35 times earnings, the stock looks expensive to me.
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So using its price-to-earnings ratio, Apple's valuation now looks expensive to me, and that's if it can maintain earnings per share at their current level.
But they have begun to stagnate and I fear that an increasingly competitive market combined with tighter consumer budgets could mean they begin to decline.
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So while I think Apple is a great company, I wouldn't buy shares at the current price.
Assessment is a fundamental tool for any Investor: And I wouldn't start investing without learning at least the basics.
2. Plan to invest strategically
But how do I know which stock to look at? After all, there are thousands of stocks listed on the London and New York stock exchanges alone.
Like Buffett, I would stick to what I know. I would start my investments conservatively, focusing on lower-risk stocks, even if that meant missing out on some potentially big returns.
To manage that risk, I would diversify my investment. With £360, I could comfortably invest in two or three different companies.
3. Start buying and holding
Once I found stocks of large companies that I thought were attractively valued, I would start investing in them. With a time horizon of several years, I would buy and hold.
To prepare to do that now, I would start by opening a share dealing account or stocks and Shares ISA.
