£3,000 in savings? Here’s how that could be used to start investing today
Does it take huge sums of money to start investing?
The answer is a firm no. It is possible to start buying shares with fairly modest means.
That could be just a few hundred pounds (or perhaps even less). Here, though, I will demonstrate how someone could start investing with a spare £3,000.
That is a big enough amount that it would allow someone to diversify between a few different shares and hopefully also lose a smaller relative amount in minimum charges and commissions than if they invested with much less money.
Why, what, how?
Some people plan to get into the stock market, but they do not really know why.
The answer may seem obvious: they want to try and make money. But there are other ways to try and make money. Some are lower risk than investing in stocks and shares (though they may also offer lower possible rewards).
So I think a would-be investor ought to have a think about how they want to try and make money.
For example, a lot of investors buy shares that have suffered a big fall, hoping their prices will bounce back. Others aim to invest in high-yield shares because of the passive income potential offered by juicy dividends.
Meanwhile, some investment strategies are built around trying to invest in fast-growing businesses.
Those approaches are not mutually exclusive. But it helps to decide what one wants to achieve as an investor, as it can help inform the choices you make.
Hereâs a real-life example
As an example, let me illustrate with one share I have been buying this year: B&M European Value Retail (LSE: BME).
It ticks the box of ‘value investing’ as its share price hit all-time lows this year. The price is 49% lower than five years ago. I also like the passive income prospects, thanks to a 6.2% dividend yield.
I do not think B&M has anything like the growth prospects of an Nvidia or Meta. That said, its most recent quarterly results showed like-for-like sales revenue growth of 4.4% compared to the prior year period.
But B&M’s like-for-like sales of fast-moving consumer goods fell. That’s an alarming indicator for a discount retailer that ought to be benefitting from squeezed household budgets encouraging shoppers to hunt for bargains.
So, what is my strategy here? The dividend is not guaranteed â none ever are. But I do like the income prospects and B&M has strong cash flows that could help fund the shareholder payout.
The main driver for my investment, though, is a belief that B&M shares are undervalued. The share price is eight times earnings. I see that as cheap.
Apparently undervalued shares can become even cheaper — a useful lesson often learnt through experience.
B&M has a large customer base and strong value proposition. But other discount retailers continue to expand, threatening its market share.
For now, though, I will hang onto my B&M shares as I still believe in the business. It fits my investment strategy.
Getting going
Making a plan, then taking time to assess possible shares to buy, requires patience and effort.
But before someone can start investing, they need a way to do so. So a useful first step would be to put the £3,000 into a share-dealing account, Stocks and Shares ISA, or trading app.
The post £3,000 in savings? Hereâs how that could be used to start investing today appeared first on The Motley Fool UK.
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C Ruane has positions in B&M European Value. The Motley Fool UK has recommended B&M European Value, Meta Platforms, and Nvidia. 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.
