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A myth about the stock market is that it takes a lot of money to start investing. Not only is that false, but I actually see some benefits to starting a stock market journey earlier and with a smaller amount rather than later, with more funds.
We all hope to avoid beginner mistakes, but at least when they occur with only a small amount at stake, they tend to be less financially painful.
If you had less than £1,000 and wanted to start investing in the stock market, this is how you would do it.
Question 1: why?
I would start by asking myself why I want to invest. This may seem obvious. But in reality, there are different reasons and they can have an impact on the approach taken. Some people invest to try to increase the value of their portfolio. Others want to establish passive income streams, thanks to owning stocks that pay dividends.
Whatever the reason, I think it is good to be as clear as possible about the reason for investing. That will shape the investment decisions you make.
Question 2: how?
For me the next question is as? Others, however, might ask how much?
With less than 1,000 pounds I think it is possible to start trading in the stock market. However, the question of how much is not irrelevant, since you would have to decide what amount to put into each stock. After all, my goal would be to start investing as I intended to continue, diversifying my portfolio.
As to asI would design an investment strategy based on my objectives.
To begin with, I would try to keep my risks low, as I would inevitably continue to learn. To know how to invest and try to achieve my goals, I would like to know the stock market in more detail. Specifically, I would delve into issues such as valuation.
Question 3: what?
Valuation is important because it drives my profitability as an investor (or not). To perform well, I typically want to invest in great companies, but I also want to invest at the right price.
As an example, consider Legal and general (LSE: LGEN). He FTSE 100 The financial services provider has several things going for it. To begin with, the market for financial services linked to retirement is huge, and I hope it will continue to be so.
Specifically, Legal & General has a number of things going for it when it comes to competing in that market, from its well-known brand to a large customer base.
The company has refined its strategy over the past decade, focusing more clearly on retirement. I see it as a competitive advantage compared to more generalist rivals.
Legal & General faces challenges (like all businesses). One that worries me is the prospect of an economic downturn leading clients to withdraw funds. That could result in a dividend cut, as we saw during the last financial crisis.
Still, with a 9% yield, putting it among the most profitable FTSE 100 dividend payers, Legal & General is potentially a passive income goldmine in my view. That's why I have the stock in my stocks and Shares ISA.
