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The idea of entering the stock market undermines the appeal of potentially building wealth. But it can be an expensive undertaking too – and it can be confusing to know where to start.
Perhaps that explains why many potentially successful stock market investors miss out, since they never actually start buying stocks.
If I've never invested before and want to start investing without waiting until I've saved thousands of pounds to do so, here's the plan I'll use.
Setting up a sales account
My first step would be to set up an account that would allow me to buy shares and deposit the money I wanted to invest into.
This can be a share trading account or a Stocks and Shares ISA. If I were investing £830, high selling commissions and fees (or account management fees) would eat into my capital as soon as I started buying shares. So I carefully compared the options to find the best fit for my financial situation.
Understanding basic investment principles
I would like to understand more about how the stock market works before investing my money in it. However, my first move will be to understand basic but important investment principles such as how to reduce my risk by diversifying my holdings and how to build a portfolio.
Even a small sum of money can build the foundation of wealth, if invested correctly over time. So I would not plunge blindly into the stock market. Instead I would study, decide what I intended to do – and then figure out how.
Finding stocks to buy
Once I felt ready, I would start looking for stocks to buy.
There are three important aspects to this, in my opinion. Another is whether the business has strong enough leverage. The second is that moderation gives me enough leverage to make money from that skill. Even a large company can make a bad investment if I overpay, after all.
A third consideration would be how the share fits into my overall portfolio. For example, if all I own are bank shares then buying another bank share would further concentrate my risk.
One share I would gladly have
I would start buying shares by investing in a company like Reckitt (LSE: RKT). The consumer goods company has had some bad luck recently, due to legal issues arising from the discovery of disastrous infant formula that poses a risk of lower profits in the future.
But there's still a lot to like here and I think the beaten-down price (down a quarter over the past year) makes the shares look attractively priced to me. Indeed, if I had money to invest, I would happily start buying Reckitt shares in my portfolio.
Demand in its markets is encouraging, it has many strong brands that give it pricing power and generate significant cash. It's a blue-chip FTSE 100 paid a dividend of 4.5 %.
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