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How I’d use £300 of Christmas money to start investing

smiling couple holding champagne glasses and looking at camera at home with christmas tree

This can be an expensive time of year. But for some people it also brings Christmas money as a gift. Rather than fritter it away, I think it’s possible to use such Christmas money to start investing. Here’s how I would do that with £300.

The benefit of investing

Why would I bother investing? After all, I could use the money to splash out on a treat for myself.

That’s true, but the reason I would consider using such money to invest is to help it go further. If I spent it all now on something I wanted, the money would be gone for good. But if I put it to work in the stock market, it could turn out to be the gift that keeps giving. Whether through dividend income or growth in share value, my £300 today could turn into a bigger sum in the years to come.

How I’d invest £300

The simplest way for me to invest £300 would be to put it into an index tracker fund. These are shares in a fund that invests to mirror a leading index. An example of such an index is the FTSE 100. Such a fund should offer broad exposure to companies in a range of business sectors. It would also give me some diversification. Diversification matters because it helps me reduce my risk if an individual company performs poorly. With £300 it can be hard to diversify by buying individual shares. An index fund offers me the benefit of diversification thanks to its investment in a variety of different companies.

Such an approach is fairly simple and requires me to do little. I could simply invest my £300, sit back, and wait to see how my shares perform over time.

Could I start investing actively?

A lot of people struggle just to sit still, though. Instead of buying a tracker fund, I could invest in individual companies.

That typically incurs fees. My £300 could soon be eaten up by fees if I buy lots of shares in different firms. So I would choose a couple of different ones. That at least gives me a little bit of diversification, while keeping the impact of trading fees on my £300 stake relatively low.

It’s not as easy as many people think to choose shares that go on to perform well. So while I might set up a trading account and deposit my £300 immediately, I wouldn’t be in a rush to use it to buy shares. Instead, I would do some research. First I’d clarify my investment objectives. Should I focus on income, share price growth, or a combination of both?

Having done that, next I would start looking for individual shares that might meet my criteria. For example, a company like Imperial Brands could offer me a high dividend but the growth prospects for its tobacco business look limited. There could be plenty of growth at food delivery company Deliveroo – but I wouldn’t expect it to pay dividends any time soon.

Each share carries its own risks, so I would take time to research the pros and cons of any given share. Only once I had done some research and found some shares that seemed to meet my own investment priorities would I start to put my £300 of Christmas money to work.

The post How I’d use £300 of Christmas money to start investing appeared first on The Motley Fool UK.

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Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Deliveroo Holdings Plc and Imperial Brands. 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.