One of the things that puts a lot of people off investing is the money involved. There can be a perception that buying stocks is something only for those with a lot of disposable income. But in fact, many people start investing when they have only limited means.
Here is how I would begin investing in shares in three simple steps, using just £200 a month.
1. Read and learn
The stock market involves millions of participants, some of them highly sophisticated institutions controlling billions of pounds. Although a private investor like me can do well, it makes sense to prepare carefully.
An important form of preparation is research. I like to read widely on the stock market, hear competing viewpoints from fellow investors and draw my own conclusions about individual shares.
What am I looking for when doing research like this? Sometimes it is a research theme. So if I think consumer behaviour is changing in a certain way I might try to learn about it. One example could be the growing number of people who are cutting back meat and dairy products or avoiding them altogether.
If there is a theme I think is interesting, I also read up on shares that might offer me exposure to it. To illustrate, if I wanted to consider investing using the theme above, I might look at companies such as Oatly and Beyond Meat. I would start reading in detail about the finances of such companies, often from their annual reports. How profitable are they? How much debt do they have? Do they generate free cash flow? What is their future outlook?
2. Zoom in on some options
£200 a month is £2,400 per year. That should be enough for me to invest in a few different companies. So I could choose several distinct businesses I think might do well and reduce my risk through diversification.
I would avoid the temptation to rush into buying shares immediately though. First I would want to consider my options carefully. I would also think about how well a share matched my personal investment objectives. For example, if I wanted regular passive income I might be attracted to a company like Imperial Brands or BP. But as long-established companies in mature industries, their growth prospects could be limited. Dividends are never guaranteed, either.
Initially I would stick to well-run, profitable companies with established track records. They would not necessarily offer the best returns in the market, but they could also help me avoid some of the costly mistakes many people make when they start investing.
3. Start investing – and wait
At some point, when my £200 a month was mounting up and I had researched some specific share ideas, I would start buying shares. I would use a Stocks and Shares ISA for its tax advantages.
I would keep researching and monitoring market movements. But I would try to avoid the temptation to keep moving in and out of the market very regularly. I see that as ‘trading’ not investing. A slong as I am careful when selecting the shares I buy, I would hope to keep holding many of them for years.
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Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Beyond Meat, Inc. and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.