£3,000 in savings? Here's how I'm going to use that to start buying stocks this July

If I had never invested in the stock market before and had £3,000 to spare, here is how I would start buying shares now.

Why do I invest?

Before explaining How I was about to start investing, let me explain why.

Buying shares, even at a very small scale, I hope will help me benefit financially from the performance of the businesses in which I have invested. The longer I wait to do that, the more opportunities I might miss down the road – if I ever get started.

Getting ready

My first move would be to put £3,000 into a stockbroking account or a Stocks and Shares ISA.

There are many options, so I will take some time and do some research to help me decide which option best suits my circumstances.

Next I will learn about the important concepts of the stock market. For example, a good company may not invest well: valuation is important.

Building a portfolio

Another important concept is risk management. Even with £3,000 I can comfortably spread my holdings across a range of businesses. That would minimize the impact on my overall performance of one assignment going wrong.

I would stick to companies in areas I understand. After all, I want to be an investor, not a custodian.

In the time frame, I will aim to start buying stocks now that I think I will hold for the long term. My focus would be on businesses that have a competitive advantage in an environment that I expect to benefit from ongoing customer demand on a large scale.

An example in practice

The type of sharing I mean can be shown by the one I already have: IM&G (LSE: MNG).

I FTSE 100 An asset manager works in a high-risk market, so even small commissions and fees can quickly add up. A potentially profitable line of business naturally attracts many competitors. IM&G enjoys advantages that include a strong brand, a multi-million customer base spread across more than twenty-two markets, and deep asset management expertise.

Besides, the company with its dividend yield of 9.6% has a market capitalization of less than £5bn.

Perhaps part of the reason for that risk balancing is that some investors realize that the long-term need for active asset management may fall as more investors now use tracker funds. However, I think the combination of potential reward and risk in M&G is attractive, which is why I hold the share.

Setting realistic expectations

One mistake people sometimes make when they first start buying stocks is to dream of big rewards and not pay enough attention to the potential risks.

That's understandable, but the risks are real – and very significant. So if I were to start investing from scratch, I would start with a conservative set of expectations and think about the potential risks at least as much as the potential rewards.

With the right mindset, careful stock selection, and some research, I hope I can use my early entry into the stock market to my advantage!