This can be an expensive time of year. But for some people it also brings Christmas money as a gift. Rather than fritter it away, I think it’s possible to use such Christmas money to start investing. Here’s how I would do that with £300.
The benefit of investing
Why would I bother investing? After all, I could use the money to splash out on a treat for myself.
That’s true, but the reason I would consider using such money to invest is to help it go further. If I spent it all now on something I wanted, the money would be gone for good. But if I put it to work in the stock market, it could turn out to be the gift that keeps giving. Whether through dividend income or growth in share value, my £300 today could turn into a bigger sum in the years to come.
How I’d invest £300
The simplest way for me to invest £300 would be to put it into an index tracker fund. These are shares in a fund that invests to mirror a leading index. An example of such an index is the FTSE 100. Such a fund should offer broad exposure to companies in a range of business sectors. It would also give me some diversification. Diversification matters because it helps me reduce my risk if an individual company performs poorly. With £300 it can be hard to diversify by buying individual shares. An index fund offers me the benefit of diversification thanks to its investment in a variety of different companies.
Such an approach is fairly simple and requires me to do little. I could simply invest my £300, sit back, and wait to see how my shares perform over time.
Could I start investing actively?
A lot of people struggle just to sit still, though. Instead of buying a tracker fund, I could invest in individual companies.
That typically incurs fees. My £300 could soon be eaten up by fees if I buy lots of shares in different firms. So I would choose a couple of different ones. That at least gives me a little bit of diversification, while keeping the impact of trading fees on my £300 stake relatively low.
It’s not as easy as many people think to choose shares that go on to perform well. So while I might set up a trading account and deposit my £300 immediately, I wouldn’t be in a rush to use it to buy shares. Instead, I would do some research. First I’d clarify my investment objectives. Should I focus on income, share price growth, or a combination of both?
Having done that, next I would start looking for individual shares that might meet my criteria. For example, a company like Imperial Brands could offer me a high dividend but the growth prospects for its tobacco business look limited. There could be plenty of growth at food delivery company Deliveroo – but I wouldn’t expect it to pay dividends any time soon.
Each share carries its own risks, so I would take time to research the pros and cons of any given share. Only once I had done some research and found some shares that seemed to meet my own investment priorities would I start to put my £300 of Christmas money to work.