Every year the deadline for contributing to a Stocks and Shares ISA rolls around at the start of April. A lot of seasoned investors add money to their ISA before that deadline. Meanwhile, others who are wondering whether they should start investing have a choice about whether to make the move – or let another opportunity pass them by.
If I had never invested before and wanted to start investing now with a few hundred pounds, here is how I would do it.
Starting where you are
Before I get into the nuts and bolts, let me explain why I would start where I was, even if I had only a few hundred pounds to invest.
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Waiting until I had more money to start investing could mean I end up just kicking the ball down the road year after year, potentially missing out on some brilliant market opportunities while I dithered.
If I was to make beginner’s mistakes – an unpleasant but educative reality for many of us – I would rather do it with a smaller than larger sum in my ISA!
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Choosing the best ISA for me
Not all investors are made the same – and neither are Stocks and Shares ISAs.
That is why, before I was to start investing, I would figure out what ISA seemed the most appropriate for me.
I would open it and put my £300 into it before the coming deadline next month, even if I did not yet have a clear idea of how I might end up investing it.
Finding shares to buy
When it came to looking for shares to buy, I would keep things simple.
Like legendary billionaire investor Warren Buffett, I would limit my search to businesses I felt I understood and whose commercial potential I could therefore assess.
But I am not just looking for great businesses. I am looking for great investments.
That means buying into the right business, but also at the right price. A common mistake people make when they start investing is not paying enough attention to share valuation when hunting for shares to buy.
With more money to invest, I would spread my risk by diversifying across different shares. Guess what? With £300 I would do exactly the same!
I might spread the money over two to three different shares. Another way to improve my diversification would be by buying into investment trusts that themselves held diversified portfolios.
Buying into enduring businesses
An example of the sort of share I would buy if I had money to spare would be Unilever (LSE: ULVR).
The consumer goods giant operates in a market with massive customer demand I think is likely to endure. Thanks to its stable of premium brands like Magnum and Dove, Unilever is able to charge a higher price than unbranded rivals and also build customer loyalty.
That approach can have hiccoughs. If the economy is weak, consumers may trade down to supermarkets’ own-label products. That could hurt revenues and profits at Unilever.
But Unilever’s proven business model has been consistently profitable. Its dividend yield is 3.9%.
With a price-to-earnings ratio of 16, the valuation strikes me not as a bargain, but reasonable.
