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The idea of buying stocks and trying to build wealth can be attractive. But many people start buying stocks only at an older age, if at all. By delaying, they can miss out on all kinds of opportunities over decades.
You don't need a lot of money to start buying stocks. If you had never dipped your toe into the stock market and wanted to get started, with only a few hundred pounds to share, these are the steps you would take.
1. Set aside some money to invest
My first step would be to put the £300 into an account which I could then use to buy shares.
I would therefore look at the different options for share trading accounts and stocks and shares ISAs, and then choose the one that seems most suitable for my own circumstances and investment objectives.
£300 may not seem like much on the stock market. But it is enough to start investing and, in fact, it is enough to allow me to diversify into several stocks from the day I start investing. This is a simple but important risk management technique.
2. Learn about stocks
Next, you would learn how stocks and the stock market work in practice. A common mistake investors make when they first start buying stocks is confusing a good deal with a good investment.
Carry Apple (NASDAQ: AAPL) as an example. I think it's a good deal and, at the right price, it could very well be a good investment. But I have no plans to buy shares of the tech giant at the moment, nor do I own any.
Because? In short, valuation. Apple has a large target market that will likely remain large. It has a sizable customer base, and I think that could continue to be the case, thanks to its strong brand, proprietary technology, and unique ecosystem of products and services. It's also hugely profitable.
But Apple shares are currently valued at around 35 times the company's earnings. That seems expensive to me for the business as it stands, let alone considering future risks ranging from growing competition from Chinese brands to the possibility of a weak economy hurting demand for expensive phones.
I invest to make money. If I pay too much, even for a great company, I could end up owning shares that are worth less than what I paid for them.
3. Buy and hold quality stocks
My next step would be to decide my initial investment strategy (e.g. the balance between growth and income I wanted to achieve with my portfolio) and then start looking for stocks to buy.
After that, I would buy them if I could do so at what I thought was an attractive valuation, and then I would hold firm.
As an investor, not a trader, my time horizon is long term. So I would look to hold onto stocks for years, hoping to benefit from rising valuations and perhaps dividends… if I had picked the right ones and bought them at the right price.
