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One reason—or excuse—that many people use to not start investing is money.
That's understandable.
That said, you don't need to invest huge amounts of money to start buying stocks. In fact, I think there's a lot to be said for starting small. That way, beginner mistakes can prove less costly.
If I had £480 to spare, here are three steps I would take to start investing.
1. Preparing to buy stocks
First, I would put the money into a share trading account or stocks and shares ISA whichever I feel best suits my needs and circumstances (there are lots of different options available).
By doing so I would be ready to invest the money in the market as soon as I found stocks to buy.
2. Understand how the stock market works
However, I wouldn't rush into buying. There are plenty of stocks that are performing poorly or moderately, and only a few that are performing spectacularly.
I may not find the brightest ones, but I will definitely try! So I would take the time to learn how the stock market works in practice.
For example, when I buy a stock, what do I actually get? How can I decide if the price is attractive? What costs and fees might reduce my return? What is the right mix of risk and potential reward? Many people start investing with too little regard for risk and with too high an estimate of their own stock-picking abilities.
In most areas of life, it makes sense to invest time in educating yourself and understanding how things work before you do them. The stock market is no exception.
3. Find stocks to buy
Even with £480, I wouldn't want to put all my eggs in one basket, so I would diversify my investment into at least a couple of different stocks. I could also consider buying shares in mutual funds, which themselves usually have a diversified portfolio.
I don't buy stocks simply because I think the price might go up. That's not investing, but speculation. Instead, I look for great companies that I believe are undervalued when I compare their current share price to their future business prospects.
Of course, this involves a certain degree of guesswork on my part: no one knows for sure what will happen in the future. Still, I look for certain characteristics.
This can be seen with my ownership of shares in JD Sports (LSE:JD).
The global sportswear market is big and I expect it to remain that way over time. With a network of thousands of stores spanning multiple markets and a strong digital presence, JD Sports can tap into that potential.
The retailer has a number of competitive advantages, from economies of scale to an exceptional understanding of consumer trends and what its target customers like.
This does not mean that everything is a bed of roses. Nike has struggled with weak demand this year and that is a risk to the revenues and profits of retailers including JD Sports.
But as a long-term investor, I like the balance of risk and potential reward that I believe owning JD Sports shares offers.
