Investors have been known at times to dive into stock market investment without even a skeleton knowledge of how equity markets work. Remember late 1999 and early 2000, when taxi drivers and blokes down the pub were freely handing out ‘tips’?
Once bitten and a few quid down, they would moan about bad luck and put their depleted capital back into the building society. Or worse still, they become desperate and gamble wildly in an attempt to retrieve their losses.
Buying individual shares carries significantly greater risks than tracking an index, or investing in units in a fund, but the rewards can be far bigger too.
SIMPLE RULES
As you start out, there are few strategic pointers which will serve you in good stead.
First, and as cliched as it may be, you should only invest money in shares that you could comfortably afford to lose.
You simply need to ask yourself, if the money you are about to plough into shares suddenly disappeared, would you still have enough set aside to meet your basic needs; pay the mortgage, utility bills, cloth the kids etc?
If the answer is yes, then beyond that how much you want to invest is a personal decision. Never, ever, borrow to play the market.
PLAY A LONG GAME
Take your time. It is often worth playing the virtual market, with imaginary money for a while to fine tune your strategy. There are plenty of ‘fantasy’ shares games online or trials where you can run a dummy account with a stockbroker before you actually commit real cash.
You must take your investing seriously. Keep records showing every purchase and sale as though you had given the order to your stockbroker, and calculate the total cost of your share dealing, including broker’s fees.
REMAIN IN THE REAL WORLD
Do not fool yourself. Remember you will have to pay commission both when buying and selling shares. Play the game until you feel confident, then tot up how you have done.
If you show a good profit then consider investing for real. Also compare how your money would have done on deposit in a bank or similar institution.
Make a gradual start, using just only some of your investment cash, perhaps a quarter or third, and be prepared to take the odd loss on the chin. Philosophically speaking, modest early hits can be written off as part of your learning curve, a sort of self-tuition fee.
This is likely to prove extremely valuable since there is no substitute for real experience when it comes to buying shares.
YOUR STARTING POT
There is no minimum amount needed to start trading shares - relative fortunes have been made from initially modest stakes of just £100 or £200.
But because of the spread between the prices at which you can buy or sell, plus broker fees, something in the region of £500 to £1,000 in any one stock is probably advisable.
