The idea of getting into the stock market is one thing. Actually making the move to start buying shares is another.
Making the move need not be expensive. If I had never bought shares before and wanted to begin on a limited budget, here is how I would go about it. By “limited budget” I mean just a few hundred pounds. Specifically, I will illustrate how I would put £350 to work in the stock market today as a first-time investor.
Setting up an account for buying shares
Before buying anything I need to have some way to deal shares.
That does not need to be a complicated move, but there are a lot of choices available, so I would take time to look at the options and decide which one seems to suit me best.
To that end, I would set up a share-dealing account or Stocks and Shares ISA.
Getting to grips with how to invest
Next, before rushing into the stock market (which can seem tempting), I would spend time figuring out what I wanted to achieve and how.
For example, some investors hope to earn an income through buying shares that pay them dividends. Others focus more on putting money into companies they hope can grow fast and become the next Nvidia or Tesla.
The stock market can contain some surprises for the unknowing, so I would also get to grips with ideas like how to value shares before investing a single penny.
Building a portfolio
Having learned more about how the stock market works in practice, I would be ready to get active in it and start buying shares myself.
I would begin with a risk-averse approach. While it is easy to dream of riches, one of the traits of many successful stock market investors is that they pay careful attention to risks and take them seriously.
To that end, I would diversify my portfolio across multiple shares. Even with £350, that would be possible.
Finding shares to buy
To show what matters to me when I buy a share, let me illustrate with an example.
Baker Greggs (LSE: GRG) is a company I feel I understand and, when investing, I think it is always best to stick to what you know.
It operates in a market with high demand that is likely to stay high in the long term. Thanks to its large shop estate, its own take on well-known products, 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 post-tax profits of £143m on a turnover of £1.8bn. That means the net 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 food at home instead of buying takeaways. But the reason I do not own Greggs at the moment is the valuation. Its price-to-earnings ratio of 25 is too high for my tastes.
It is important to start buying shares as one means to go on, in my view. That means finding a combination of a great business with an appealing current share price.
