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There are various reasons why some people dream of making money in the stock market but let years pass without making a move. One of the common reasons I think some people don't start buying stocks early is lack of money.
That's understandable – or is it?
After all, it is possible to start buying stocks with relatively little money. In fact, in some ways I think that makes better sense than spending years saving a large sum of money to start investing. For example, it means that beginners' mistakes will hopefully be more financially painful than investing a very large sum.
If I had never invested before and had £380 to spare, here are three steps I could take to start buying shares now.
First step: setting up a stock market trading account
My first move will be to set up an account that allows me to buy shares and put £380 into it, ready to invest.
For example, that could be a share trading account or a Stocks and Shares ISA.
There are many options available, so I can take my time to find the best fit for me. Since there is a small amount at hand, the other consideration would be the commission or fees I have to pay to buy or sell shares.
Step two: learn about the stock market
My next move will be to better understand how the stock market works.
From the outside this may seem simple. But if one invests more than just watching, some things can be more complicated than they first appear. For example, a smart business with a high share price may end up making a low investment.
So I will try to learn how different people value stocks and why.
My goal would be to arm myself to identify stocks in large companies that I felt could help me increase my investment value over time, due to the gap in the company's current valuation compared to what I think it is worth.
Step three: building a portfolio
Now I'm ready to start buying stocks!
Diversification is an important risk management strategy and, even if I had £380, I would just start by spreading my money over more than one share.
The type of share I will be looking for can be shown by the one I just bought, Diageo (LSE: DGE). The brewer and distiller has a wide range of premium products in its global market portfolio. That gives it pricing power that helped it make £3.7bn in profit after tax last year.
Those gains help support a dividend that has grown every year for more than three decades.
Currently the yield is 3.1%, so hopefully such a share can earn me income in the form of dividends. What worries me the most, however, is the potential I see for share price growth.
Shares are down 22% over the past five years. I think that shows some vulnerability. Luxury spending is declining in many markets. Diageo's price tipples saw weak demand in Latin America and could spread elsewhere, hurting profits.
But as a long-term investor, this is the kind of share I can happily leave for years.
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