How to start investing in shares

It can be daunting entering into the world of investing in shares. Trading is often associated with the City, big banks, multibillion-pound transactions. It is though possible thankfully getting easier and easier as technology progresses to become involved and over time hopefully make money investing in the stock market.

The new world now includes “free” trading apps like Freetrade and Trading212, which opened the market up to many new investors. Some of these platforms allow investors to buy a fraction of a share and had other benefits.

Also, the very public stock market collapse because of Covid-19, also opened up the market and attracted new investors. Potentially one of the reasons the US bounced back so quickly from that initially sharp market fall was the impact of people investing for the first time.

Then more recently there was the press around the GameStop short squeeze. Again, it has shown that ordinary people can invest in the stock market.

As with anything new, it’s easy to make mistakes. When that involves your own money any big misstep can be very painful. But perseverance is key. All investors make mistakes!

It’s great to see people of all ages want to know how to get started in investing. Here’s my guide for how to get started investing in shares.

Do some (real) reading

Would you try to rewire a house without first reading about how to do it? It’s doubtful. So why would you invest money without knowing the basics? Actually having a basic understanding of the market, knowing the terms used and what they mean, what moves share prices, what the different charges are etc is all essential knowledge. If you fail to prepare, you prepare to fail.

My recommended reading for those new to the stock market is:

  • Shares Made Simple, Rodney Hobson
  • The Naked Trader, Robbie Burns

These are the books I started with and they provide a good foundation for beginner investors.

As an aside on social media, there are some genuine, great people on there who’re successful investors, but new investors must be aware that there are plenty of unscrupulous people on there as well. It’s best as a new investor to concentrate on understanding the basics of the stock market and how it works and do that by yourself. That’s why books are a good starting point, rather than individual stock “tips” from websites and social media.

Make it happen

That said, once you know the basics then at some point you have to take the plunge and put money into shares. This is where practical learning begins. It’s worth evaluating what works and what doesn’t work and learning from your mistakes. It’s inevitable there will be some.

Before getting started for real, you can start on demo accounts and create watchlists with Hargreaves Lansdown for example. This can help you understand which shares are doing well and which are becoming cheaper. It could also give you the confidence to press ahead once you’re ready.

Don’t go all in until you’ve earned practical experience

To avoid losing your confidence and potentially withdrawing from stock market investing altogether, I’d advise don’t go ‘all in’ at the very start. Accept that better decision making will come with experience, so build your way up to having a portfolio of shares.

To build on the rewiring a house metaphor, you wouldn’t attempt to rewire a whole house when you have no practical experience of being an electrician. The results could be catastrophic. You’d learn how to do it first, then apply that learning to a small circuit, then review and learn lessons, then probably once ready take on a bigger project.

You’re looking at a similar journey to investing success. No one makes all the right decision all the time. Be humble. Realise there’s always more to learn and improve and act accordingly.

Build a portfolio

Different people invest in the stock market in different ways. I’d suggest aiming to become a long-term investor, which means buying and then holding companies for as long as they remain good investments. It also means spreading your investments across different types of style – for example, value, growth and contrarian.

Also, spreading risk by investing in different industries and countries can help as well. If you invest all your money in UK banks, and the economy deteriorates you’ll face heavy losses regardless of the validity of your investment case. Holding shares in other industries would lessen the blow considerably.

The big point here is don’t copy the trades of anyone else. You are responsible for your own decisions, what level of risk you want to take, what returns might be acceptable, where you want to invest and what in. Build a portfolio of shares that you are happy to hold.

Leave some money to professionals

Especially as a new investor, I’d put at least some money into funds, trackers and trusts run by professionals. Being new to the stock market is exciting, but also there are many chances for an investor of any amount of experience to lose. It’s rare for any investor to get more than 50% of their decisions right. It’s how an investor reacts to those mistakes that determines their success in my view.

I’m actually increasing my holdings run by professionals or trackers, precisely to limit some of the risks associated with my decision making and to allow me to access a wider variety of investments.

I’d also watch for these things

  • Use reputable brokers (when my stockbroker collapsed it took over 15 months to get back over £50k of my money) – you may be covered by the FSCS but it’s still a lot of hassle and anxiety.
  • People ramping stocks on social media. This is where individuals or groups working together try and manipulate share prices by creating demand for shares, pushing up the share price. So, don’t be too trusting of people you don’t know, especially where money is concerned. Note this is particularly prevalent amongst the very smallest companies, often known as penny shares. My promise to all readers is to never “ramp” a share.
  • Your own emotions. The more emotional you are about investing the more likely it is you’ll achieve lower returns.

Investing in the stock market can be rewarding. It does though require hard work, perseverance, reliance and knowledge.

I’ll finish by saying if you don’t put anything in, you won’t get anything out. It’s a simple equation really.

I hope you’ve enjoyed this article. If you do please check out the other beginner guides and these interviews I did with four experienced investors, which includes a trading checklist.

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