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£3,000 in savings? Here’s how I’d use that to start investing today

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Image source: Getty Images

Dreaming of buying shares is one thing. Actually making the move to start investing is another.

It need not be complicated. Nor does it necessarily take years and years of saving to build up a huge investment pot before getting going.

In fact, I think there can be benefits to starting sooner rather than later. It gives one a longer timeframe in the markets. As a believer in long-term investing I think that can be a huge advantage. It also means that any beginner’s mistakes could be less painful than if bigger sums were involved.

If I had a spare £3,000, here are the moves I would make to start investing.

Decide on an investing strategy

I would think about what my objectives in the stock market are.

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For example, do I want to buy into growth companies in the hope of finding the next Tesla or Nvidia? Am I more focused on the potential passive income streams offered by owning high-yield dividend shares like M&G and Imperial Brands? Or might a combination of both suit my objectives?

While figuring out my objectives, I would also take some time to learn about how the stock market works. What makes a good business does not necessarily make a good investment.

That depends, in part, what price I pay for its shares. So getting to grips with concepts like how to value shares is important before I start investing.

Getting ready to invest

Another, practical, move I would take is to put my £3,000 into an account that would let me buy shares.

That could be a share-dealing account or Stocks and Shares ISA, for example. There are lots of options. I would look into the alternatives and choose one that seemed best for my own needs.

Building a portfolio

My next move would be to start building a portfolio, by choosing different shares to buy.

Why not just put all my £3,000 into what seemed to me like the best idea? The problem is that what seems to me like a great idea – and indeed may be – can suddenly be seen in a very different light if circumstances change.

Even the best company can run into unforeseen challenges. By diversifying my portfolio, I could reduce the risk to my £3,000 if one of my choices turns out poorly.

Finding shares to buy

To choose shares to buy for that portfolio as I start investing, I would stick to what I know.

For example, if I was a regular shopper at Greggs (LSE: GRG), I would have an idea of how busy its shops are and how satisfied customers seem to be.

I could add to that anecdotal and observational knowledge by reading the company accounts. That would also let me see things like how much debt the company had on its balance sheet (none: it ended last year with net cash and cash equivalents of almost £200m).

A competitive advantage in a market likely to benefit from high demand can help a business do well. Greggs has that, from unique products to a large shop network.

But it also faces risks, from wage inflation eating into profits to cash-strapped consumers cutting back on takeaway foods.

The post £3,000 in savings? Here’s how I’d use that to start investing today appeared first on The Motley Fool UK.

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C Ruane has positions in M&g Plc. The Motley Fool UK has recommended Greggs Plc, Imperial Brands Plc, M&g Plc, Nvidia, 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.

Motley Fool UK 2024