Here's how I can use £500 to start investing this August

Usually in August the stock market is a sleeper. Not so this year, as this week's moves have shown. If I've always wanted to buy into the stock market but never did, here's how I'll start investing this August.

My plan does not require large sums of money. Indeed, below I discuss how to invest with a Spare £500.

Learning about the stock market

My first step would be to start learning about how the stock market works. For example, think an apple (NASDAQ: AAPL). It is very successful and very profitable. But a good business does not necessarily mean a good investment. That depends on the rating.

Indeed, billionaire investor Warren Buffett has sold off a lot of his Apple stake recently – but he still has a lot of stock.

We don't know Buffett's mind. Is it about equity (in which case why didn't he sell all of his ownership in a tech company)? Or could it be the case of an investor who wants to diversify his portfolio? I would aim to do that from the day I start investing – £500 is comfortable enough to spread over several different stocks.

From measurement to classification. Getting to grips with the basics of how the stock market works before investing in it makes sense to me.

While doing that, I can choose a shares trading account or a Stocks and Shares ISA that seems to suit my circumstances and needs, and put £500 into it.

Choosing stocks to buy

My next step would be to make a short list of companies that I liked as potential investments and, if the valuation was right, start investing.

What am I looking for? In many ways, Apple is a good sign. I look at the customer market that I expect to be large and strong, as that can be the basis of a large sales income. I then look for a business with a competitive advantage that I can help do well in that market.

From its product to its installed user base and proprietary technology to its service offerings, I think Apple fits those definitions.

I also consider the risks. I think when most people start investing they focus too much on the potential reward and don't pay enough attention to the risk. As Buffett says, the first rule of investing is not to lose money – and the second rule is to forget the first rule.

Apple faces risks such as increased competition from price-competitive brands, as well as perceptions of a sluggish global economy that is hurting demand for new smartphones. Still, I would happily own the shares – if I could buy them at the right price.

However for now, the valuation seems high to me. So Apple would not be on my shopping list if I were to start investing this month.

Instead, I would look for other opportunities in the current market that I think would give me better value if I invested in high-quality blue-chip companies.