Sometimes it can seem appealing to invest in the stock market, but a bit bewildering to know where to begin. If I were starting off with £100 a month, here’s how I would start investing in UK shares.
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The stock market doesn’t have to be a complicated place, but obviously knowledge would be helpful in informing my decisions. So I would study the stock market, read up on how it works, watch some instructional videos, and get my head around the basic concepts. For example, fees could eat up a lot of my monthly £100, so I’d likely save my cash for a few months before investing to reduce the impact of those fees. An alternative might be to find an account that would let me deal in even small amounts of shares with only small fees. Either way, researching my options would help me understand them better.
A lot of information is available at the touch of a button for free. In that sense, I think now may be an easier time than ever to start investing in stocks. As a private investor I can now access for free information that even a decade ago would have been difficult or costly even for a professional stock manager to get.
Focus on safety more than opportunity
I would try to focus on managing risks to my capital. There is always some risk in any share, but I would seek to find shares in companies that are conservatively run and have strong finances.
I know that when a lot of people start investing in stocks, they are attracted to very racy companies that may hold out the prospect of fast, strong returns. With only a small amount of money to start that might seem like the best way to begin. But it doesn’t seem that way to me.
In fact, I would specifically exclude from my search companies with only a small market capitalisation (the total value of all its shares), companies with a short trading history, and companies that are yet to make a profit. In doing so, I might miss out on some incredible returns. That is fine with me, because I would prioritise capital preservation over possible returns. Being greedy isn’t conducive to smart investment decisions, I find. Instead, I would focus on risk management. I’d try to find companies that I felt had a good chance of doing well, rather than ones with a small chance of performing brilliantly.
I’d start investing in stocks to help me diversify
I would try to reduce my risk by diversifying across shares in different companies.
After a while I would have enough funds to buy shares in different companies. But in the very beginning, I would start investing in stocks by buying into an index fund such as Vanguard FTSE 100 index Unit Trust. Such companies buy a basket of different shares, so can be a way for an investor with a smaller amount of money to get access to the wider market.