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The idea of entering the stock market is one thing. Actually making the first move to buy stocks is another.
Moving doesn't have to be expensive. If I had never bought stocks before and wanted to start with a limited budget, here is how I would do it. By “limited budget” I mean just a few hundred pounds. Specifically, I will show how I can put £350 to work in the stock market today as a first time investor.
Setting up an account to buy shares
Before buying anything I need to have some way of managing stocks.
That doesn't have to be a difficult move, but there are a lot of options available, so I'm going to take some time to look at the options and decide which one seems to be the best fit for me.
To achieve that, I would set up a shares trading account or a Stocks and Shares ISA.
Dealing with how to invest
Next, before rushing to the stock market (which can seem tempting), I would spend some time meditating what I wanted to win again How.
For example, some investors hope to make money by buying dividend-paying stocks. Others focus more on investing in companies that they hope will grow quickly into the next generation Nvidia or Tesla.
The stock market can contain some surprises for the uninitiated, so I would also like to get some ideas like how to value stocks before investing a single penny.
Building a portfolio
After learning more about how the stock market works in practice, I would be ready to start working on it and start buying stocks for myself.
I'll start with how to avoid risk. Although it is easy to dream of riches, one of the hallmarks of many successful investors in the stock market is that they pay close attention to risks and take them seriously.
To achieve that, I will divide my portfolio into many stocks. Even for £350, that's possible.
Finding stocks to buy
To show what is important to me when buying a share, let me show with an example.
The baker Greggs (LSE: GRG) is a company I feel I understand and, when investing, I think it's always best to stick with what you know.
It operates in a market with high demand that is likely to remain high for a long time. Because of its large store, its take on well-known brands, and strong marketing, Greggs has a competitive advantage that I believe can help it build its customer base and profits.
Last year, the company reported a profit after tax of £143m on a turnover of £1.8bn. That means the gross profit margin was close to 8%, which I think is good for a food retailer.
There are risks, such as a tightening economy leading more consumers to prepare meals at home instead of buying takeaways. But the reason I'm not Gregs yet is moderation. Its price-to-earnings ratio of 25 is too high for my liking.
It's important to start buying stocks as a way to go, in my opinion. That means finding a good business combination with an attractive current price.
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