How I’d start investing in stocks with £5,000 today

British bank notes and coins

Investing in stocks can be very personally and financially rewarding. I’ve been buying and selling UK shares for over a decade now. If I was starting with a sum of money, let’s say £5k today, here’s how I’d start.

First things first

What I’d do at the very beginning is focus on learning. I’d focus on reading through websites like this one and also read books by experienced investors. I particularly like The Naked Trader and Shares Made Simple.

Anything that can teach the basics of the investing strategy of Warren Buffett is also likely to set up a good foundation for successful investing in stocks. The Motley Fool has rounded up some of his wisdom.

Once I’d got to grips with the basics then there’s no substitute for putting theory into practice. I started with a demo account and small amounts of money. Many stockbrokers offer this.

Decide my strategy

Moving onto real money is when things get exciting. But it’s worthwhile in my opinion deciding on a strategy, otherwise, it’s possible to buy and sell too much, which racks up costs and is stressful. It also means getting a lot more decisions correct. Far better in my experience to plan and carefully research UK shares that are worthwhile buying.

So I’d want to see a company with high and stable profit margins, ideally growing revenues and a dividend that is sustainable, meaning where earnings cover the dividend twice over.

Everyone is different though so it’s best to pick a strategy that fits your goals, risk appetite, and perhaps areas of expertise. For example, a scientist or doctor may have an edge when it comes to understanding biotechnology stocks, so partly focusing on them, would make sense.

Build a portfolio for the long term

Even understanding a sector doesn’t particulalrly reduce risk. Part of the strategy should, in my opinion, be to create a balanced and diversified portfolio. This doesn’t mean buying every stock on the market. What it means is not having all your eggs in one basket. I like to invest across different industries, size of business, and even use funds and trusts to invest indirectly in companies based and primarily making money outside of the UK.

Doing this I think helps builds a portfolio for the long term and one that can ride out the inevitable ups and downs that are part of investing.

Start investing in stocks like these

Personally, I like to invest in dividend-paying stocks that seem undervalued. Think of the kinds of stocks Warren Buffett might invest in. He looks for companies with an enduring competitive advantage that can be bought at a fair price. One UK example at the moment I think is the insurer and asset manager Legal & General.

Investing in my experience is all about research and patience. Master those two things quickly and the chances of success are massively increased, I think.

This outlines how I’d start investing in stocks today – I hope it’s helpful.

The post How I’d start investing in stocks with £5,000 today appeared first on The Motley Fool UK.

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Andy Ross owns shares in Legal & General. The Motley Fool UK has no position in any of the shares mentioned. 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.

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