A lot of people like the idea of investing the stock market but never actually start buying shares. One reason can be that they think it would be better to wait for some future date when they have more money to invest.
But life can keep throwing up financial demands, so simply hoping that one day there will be huge savings available to invest can be a flawed plan.
If I had £500 and wanted to start buying shares now, here is the approach I would take.
Get ready to buy shares
My first move would be to set in place a practical mechanism for buying shares. So I would set up a share-dealing account or Stocks and Shares ISA.
With the £500 deposited in that, I would be ready to start buying shares. But I would still need to decide which ones.
Finding shares to buy
My approach to that is based on trying to buy into brilliant companies at a price I think could help make me a profit over the long term.
That profit could come from an increase in share price, dividends, or perhaps both.
Not all shares do well, though. I would therefore diversify my choices across a number of companies. With £500, I could comfortably invest in three different shares.
I would stick to blue-chip businesses with a proven business model, demonstrated ability to make profits, and ongoing commercial opportunities. I also look for firms with some competitive advantage that can help set them apart in crowded markets.
The sort of share I’d buy
As an example, consider Unilever (LSE: ULVR).
Over the past five years, the share price performance has been weak, falling 8%. The shares do at least have a quarterly dividend, currently offering a yield of 3.8%.
Given the lacklustre share price performance in recent years, why is this the sort of share I would happily start buying for my portfolio if I had spare cash to invest?
For one thing, past performance is not necessarily an indicator of what may happen in future.
Unilever operates in a market where there is huge demand I expect to continue. Consumers are going to want to keep buying shampoo and laundry detergent for decades.
The company’s collection of premium brands such as Dove helps give it pricing power. That can translate into profits, which in turn can fund shareholder dividends.
Cost inflation eating into profit margins is a risk. A weak economy could also tempt some shoppers to switch from branded products to cheaper alternatives, hurting sales.
Over the long term, however, investing in companies like Unilever is exactly the sort of first move I would happily make if I was to start buying shares for the first time today.
This post was originally published on Motley Fool
