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The idea of getting into the stock market is something that many people have in mind when trying to figure out how they can build wealth. However, only a few of them take the plunge and start buying stocks.
If I had less than £500 and wanted to invest in the stock market for the first time, here's how I'd do it.
1. Decide what success looks like
The first thing I would do is set my investment goals.
You don't have to be ambitious, but it would be helpful to decide why you wanted to start buying stocks and how you could achieve success.
That may change over time, but being clear from the start about what I want to achieve should help shape my decision-making.
2. Setting up a trading account
Next, I would open a share trading account and deposit my money into it, ready to go. This could be a share trading account or a stocks and shares ISA.
With so many options available, I would take some time to choose the one that best suits my goals and financial circumstances.
3. Educate yourself about the stock market
Many people think they understand how the stock market works, regardless of whether they have ever owned stocks or not.
But from driving a car to fencing, many things can turn out a little different in practice than they seem in theory.
This is also true in the stock market.
So before I invest a single cent, I'd like to learn more about how it works. How diverse should my portfolio be to help control my risks, for example? What characteristics does a good investment have? What are the common warning signs I should look out for when choosing stocks to buy?
My next step would be to put together a list of stocks to start buying, either now or in the future.
Why wait? In a word: valuation.
I want to buy shares in companies that I think are excellent, but I want to buy them. When I think the price is attractive – And, obviously, big business is not usually cheap.
As an example, consider Spiral London Stock Exchange (London City)
The pump and steam specialist may not be a household name (and its field may not seem exactly the most technologically advanced), but it is a very successful company and has proven that its business model can be solidly profitable. In fact, the firm has the distinction of having increased its dividend per share annually for more than half a century.
There are risks (as with all stocks). This month's interim results showed revenues down 3% year-on-year, although profits were higher. As the company noted, a weak economic environment in key markets could continue to act as a drag on performance.
5. Build and manage a portfolio
Anyway, I would love to start buying Spirax shares, at the right price. To me, the stock still doesn't look cheap, despite having fallen 27% in a year.
Over time, I would buy when stocks on my watchlist became available at an attractive price.
But first, I need to get that action list together!
