The beginning of the year can bring some things into focus. An example is personal finances. I reckon many people think in January they ought to start investing. But by December, only some of them will have managed to do that.
If I wanted to begin buying shares for the first time in a way I could realistically afford, here is how I would go about it.
Setting a savings target
My first move would be to decide how much I could afford to save on a regular basis. One way to do this would be to set a regular target.
For example, if I put aside £5 a day, I would generate £1,825 to invest in a year. Different people have their own circumstances so, for some, a smaller sum might work better while others could aim higher than me.
An alternative approach would be to put aside the spare money I had left at the end of each week or month. The reason I would not do that is I know spending requirements are sometimes higher than normal. If I do not save consistently, I may not get into the habit.
Whatever approach I took, I would put the money into a share-dealing account, or Stocks and Shares ISA.
While money is necessary to start investing, I would also need to know what I wanted to buy. So I would learn about the stock market.
For example, I could start to read up on topics like valuation. When I look at a company such as Tesla with its market capitalisation of almost $400bn, how can I know whether it is overvalued or still undervalued despite the big number?
With thousands of companies listed on the UK and US stock markets alone, I would not try to do everything. Instead, I would focus on companies in areas I understand. That would help me assess their prospects. I see that as important when evaluating an investment opportunity.
Instead of focussing on potential upside, I would start investing by trying to keep my risks low, if possible. So I would look for shares in well-established, blue-chip companies that already have a proven business model.
For example, I own shares in Altria and Standard Chartered. Both companies have proven business models. Like all companies though, they face risks. That is why I would begin investing as I meant to continue – by diversifying my portfolio.
I’d start investing in 2023
It would take me some time to build up funds and find shares I thought suited my investment objectives. So I think patience is important for an investor.
But I would still be keen to start investing once I found shares I thought matched what I was looking for. It can be tempting to save for year after year hoping for a once-in-a-lifetime opportunity to come along. But rather than do that, I would start putting my money to work in the stock market as soon as I felt I had found some great shares to buy.
Already, on the first trading day of 2023, there are some shares I would be happy to buy for my portfolio at their current price.
C Ruane has positions in Altria Group and Standard Chartered Plc. The Motley Fool UK has recommended Standard Chartered Plc. 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 2023