A lot of people like the idea of investing in shares, but they may take a while to put it into practice – if they ever do. Meanwhile, as years or even decades pass, they may be missing some great opportunities. I understand why many people hesitate before they start investing. Maybe they feel they don’t have enough money to begin, or lack the right knowledge.
If I wanted to start investing in shares today, even if I had very limited funds, here are three proactive steps I would take.
1. Setting my budget to start investing
I actually do not think it is a big deal to begin investing with only small funds. In fact I think it can be a good thing. In the beginning of any activity we often make mistakes. They can help us improve in future. Learning from investing only a small amount can help me keep my mistakes cheap.
I would not focus on the absolute size of the funds I could use to start investing. Instead, I think it is more important that I take time to decide what funds I could comfortably invest and stick to that. Setting a realistic budget and having the discipline to follow it each month is a critical foundation to a successful investing approach, in my view. The secret of many successful investors is simply the fact that they have the discipline to invest consistently in the market for the long term, through thick and thin. Over the course of time, even modest annual returns can begin to compound into something more substantial. That is why I think it is helpful to start investing sooner rather than later in life — whatever my budget.
2. Ask myself why
It may sound daft to talk of thinking about why I would invest. After all, for most people surely the point of investing in shares is to make money?
That may be true but I do not think it is the full picture. For example, if my objective is passive income, I may focus on high-yield shares like Imperial Brands or M&G. By contrast, if I am interested in long-term growth, I may invest in shares that do not pay dividends but have strong revenue growth, such as Tesla or Amazon. Each has its own attractions — and risks.
If the investment is intended to help me fund future expenses like school fees or care costs, I may want to take an approach to investing that prioritises risk management rather than simply chasing the biggest possible financial returns. Whatever my reasons to start investing, being clear about them will help me develop an investment approach that suits my personal circumstances.
3. Take time to read and learn
A great business does not necessarily make for a great share. So instead of diving straight into investing, first I would take some time to learn about shares and the stock market.
That may seem boring – but it will probably seem much more exciting once I realise it can hopefully improve my investment returns. Taking time to research shares that can match my personal investment objectives will hopefully mean that I can start investing successfully. The more I learn, the more likely I am to get better as I go.
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Christopher Ruane owns shares in Imperial Brands. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon, Imperial Brands, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
