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How much money do you need to start investing? Some think the answer is “a lot”. However, it can take a long time to save large sums of money. And starting small can mean that beginner mistakes are less costly.
Although I'm no longer a newbie, this is still the approach I follow. If I'm investing in a company for the first time, I prefer to do so on a modest scale. As I get to know him better, I decide whether or not to increase my bet.
This also explains why, in my experience, if I were to buy shares again for the first time, I would do so using a smaller sum of money, not a larger one.
Using £500 to get started in the stock market may offer me less reward potential than if I used £5,000, but it also means I would be at risk for a lot less money!
The practicalities of getting started
How much to invest is just one of the considerations people should take into account when they start investing.
another is as invest on a practical level. I'm happy with using a stocks and shares ISA. But since there are so many available, I spend time trying to choose the one that best suits my needs and financial goals. The same applies when investing through a Self-Invested Personal Pension (SIPP) or a share trading account.
It is also important to understand how the stock market works. A great business does not necessarily imply a great investment. If I pay too much, I could end up seeing my stock value drop even though the company is doing well.
So, as far as I'm concerned, things like learning to value stocks are necessary activities to learning how to invest.
Find stocks to buy
It's tempting to start investing by looking for an amazing stock that looks like it's going to explode in value. If you invest only a few hundred pounds to start, the temptation to stick to just one option can be even stronger. This is the opposite of my approach. No matter how large or small an investment portfolio is, I believe diversification is always an important risk management tool.
I also prefer to stick to proven, top-of-the-line companies. Even if its short-term growth opportunities may not seem explosive, in the long term such stocks can prove lucrative.
Invest for the long term
As an example, a stock I think investors should consider is Reckitt (LSE:RKT). The business has had a challenging few years. In fact, Reckitt's share price is now 20% lower than it was five years ago.
This may not seem like something that is an investor's dream. But past performance is not necessarily a guide to what will happen next. The price drop has brought Reckitt to what I believe is a more attractive valuation considering the FTSE 100 the long-term prospects of the company.
It reflects risks such as legal costs from ongoing infant formula lawsuits, something I still think could hurt future earnings.
But with a large market to address, strong brands like Disappear and lanaitaand a large existing customer base, I expect the company to have the potential to make huge profits in the coming years.
