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Year after year, some people plan to start buying stocks, but never do.
Maybe they feel like they don't know enough or don't have enough extra money to invest. Meanwhile, potentially lucrative opportunities simply pass you by.
In reality, you don't need a lot of money to start investing.
In fact, I think starting on a relatively small scale can offer some benefits: it can allow for a quicker start, saving larger amounts first, and hopefully any beginner mistakes will prove less costly.
If someone had £250 to spare and wanted to start buying shares, here are three steps that would put them on the right track.
Step 1 – Set up an ISA or share trading account
When the time comes to invest that £250, there has to be a way to do it. Setting up a shares trading account or stocks and Shares ISA could be left until someone finds specific stocks to buy.
But I think setting it up in advance means that any delay between starting to open it and being able to use it doesn't necessarily mean a waste of time in the markets.
There are many options available.
With any budget, but especially a small one, I pay close attention to things like trading costs and commissions that could eat up my money. In fact, one of the reasons I chose a specific ISA from the many options available was its competitive cost base.
Step two: understand how to invest and what to invest in
Like many things in life, investing may seem easier before you start doing it.
Therefore, it is simply wise to learn how the stock market works before actively getting involved in it.
For example, a common mistake people make when they first start buying stocks is to ignore the valuation for a company implicit in the price of its shares.
let's use Apple (NASDAQ: AAPL) as an example.
At the right price, I think Apple would be a stock that investors should consider. In fact, I've had it myself in the past and many of the reasons why still apply.
Your market is huge and is likely to remain so or even grow. Apple has competitive advantages such as a strong brand, proprietary operating system and technology, large customer base, and service ecosystem.
But what about your valuation?
A common valuation metric is the price-to-earnings (P/E) ratio. It's not perfect: a company may have a cheap-looking price-to-earnings ratio but a lot of debt on its balance sheet, for example. But while Apple's balance sheet doesn't bother me as an investor, its P/E ratio does.
At 42, he's taller than I like. After all, risks like growing competition in low-cost phones could hurt future profits.
A high P/E ratio can mean overpaying even for a good business. A very profitable business does not necessarily equate to a profitable investment.
Step Three: Make a Move
Having found stocks to invest in that seem to offer an attractive price for a good deal, what's next?
In my case, if I had extra funds, I would start buying those stocks.
Whether I invest £250 or a larger amount, I always spread my portfolio across at least a few different stocks to help reduce my risk if one disappoints me.
