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There are different reasons why some people dream of making money in the stock market, but let years go by without doing anything. I think a common reason why some people don't start buying stocks sooner is lack of cash.
That's understandable… or not?
After all, it is possible to start buying stocks with a relatively small amount of money. In fact, in some ways I think that makes more sense than spending years saving up a large sum of money to start investing. For example, it means that beginner mistakes will hopefully be less financially painful than if a much larger sum were invested.
If you've never invested before and have £380 to spare, here are three steps you'd take to start buying shares now.
Step One: Create an Account to Trade on the stock market
My first step would be to open an account that allows me to buy shares and deposit the £380 into it, ready to invest.
For example, this could be a share dealing account or a stocks and securities ISA.
There are many options available, so I would take my time to find the one that best suits my needs. With a relatively small sum at my disposal, one of my considerations would be the commission or fees I would have to pay to buy or sell shares.
Step Two: Learn About the stock market
My next step would be to fully understand how the stock market works.
From the outside, this may seem simple, but when you actually invest and don't just observe, some things can be more complicated than they appear at first glance. For example, a brilliant company with a high share price may turn out to be a bad investment.
Then I would try to learn how different people value stocks and why.
My goal would be to equip myself to spot stocks in great companies that I think could potentially help me increase the value of my investment over time, due to a gap in the current valuation of the company compared to what I think it is worth.
Step Three: Build a Portfolio
Now you would be ready to start buying stocks!
Diversification is an important risk management strategy and even with £380 I would start spreading my money across more than one stock.
The type of stock I would be looking for can be illustrated by one I recently purchased, Diageo (LSE: DGE). The brewer and distiller has a wide range of premium brands in its portfolio that it markets around the world. That gives it pricing power that helped it make £3.7 billion in after-tax profits last year.
Those gains help support a dividend that has increased annually for more than three decades.
The yield is currently 3.1%, so I expect that such a stock can provide me with passive income in the form of dividends. However, the biggest attraction for me is the potential I see for share price growth.
The stock has fallen 22% over the past five years. I think that reflects some real risks. Luxury spending is falling in many markets. Diageo's expensive drinks have seen lower demand in Latin America and that could spill over elsewhere, hurting earnings.
But as a long-term investor, this is the type of stock I would happily hold for years.
