Here’s how a newbie could start investing with a spare £500

How much does it take to start investing? It is a good question – and there is no one single correct answer.

What is true, though, is that it does not take huge sums of money. In fact, as I see it, there can be advantages to starting on a fairly modest scale. Mistakes could be less costly and it can mean beginning sooner, rather than having to save up for years first.

There are some potential downsides too, though. There may be minimum commissions and charges that stockbrokers levy, taking a proportionately larger chunk out of smaller investments than big ones.

What’s the stock market all about?

A common mistake I think new investors – and old ones – would often do well to avoid is not knowing what they are getting into.

For example, I have noticed a lot of fairly affluent looking people wearing On shoes. So it might seem tempting for me to buy On Holding stock (it is listed in New York).

But a good business is not necessarily the same as a good investment. Valuation matters.

I would also need to look into On Holding’s balance sheet and accounts. Just because a brand is widespread does not necessarily mean that the business has good economics or that is more lucrative than rivals. Without doing some research, an investor would be fumbling in the dark.

I am intrigued by On Holding, but need to do that research first before I would even consider whether to start investing in the company.

Basic good principles from day one

Learning the basics of how the market works is important, as is aiming to be a good investor. For example, diversification is a simple but important risk management principle. It is possible to spread £500 over a few different shares.

Different people start investing with their own aims. Some focus on the passive income potential of dividends, others on growth opportunities.

Either way, I think a good question to ask oneself when buying a share is always, “Why do I think I will ultimately gain more value from this share (allowing for the cost of tying up my money) than I am paying for it now?”

An incredibly performing share

For example, Rolls-Royce (LSE: RR) has been on an absolute tear. It has been a star performer in the London market over the past several years but has still managed to do brilliantly so far in 2025.

Over the past week, the Rolls-Royce share price hit a new all-time high, as management increased their financial targets for this year.

Shares do not keep going up — or down — just because of what they have done in the past (though sometimes it might seem that way).

What could drive Rolls-Royce shares up from here? Possible factors include new aircraft engine sales, delivering on its higher targets, and growth in its small nuclear reactors business.

But I see risks too – like a pandemic or war knocking out lots of civil aviation demand overnight, hurting engine sales. With a share price of 35 times earnings, I am not confident these risks are fully reflected.

A way to invest

So, for now, Rolls-Royce shares are on my watch list.

But I will not be buying the share for my Stocks and Shares ISA.

The post Here’s how a newbie could start investing with a spare £500 appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended On Holding and Rolls-Royce 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.