The stock market can be a daunting place for first-time investors. There are 100 blue-chip UK shares in the FTSE 100 and a further 250 companies in FTSE 250.
On top of these, there are around 600 stocks that make up the FTSE All-Share. This index includes both the FTSE 100 and FTSE 250. But that’s just a section of the market. In total, there are more than 2,000 stocks listed in London. That excludes investment funds.
With so many options to choose from, it can be almost impossible for beginners to decide where to start.
So if I had £1,000 to make my first investment in UK shares, I’d keep things simple. Rather than trying to find stocks to buy in the FTSE All-Share, I’d stick to the FTSE 100.
UK shares to buy
The highly successful investor and fund manager Peter Lynch suggests investors should only buy stocks in businesses they’re familiar with. As such, I’d only buy FTSE 100 stocks for my portfolio of UK shares that are household names.
The first stock I’d buy is BT. I’m excited about the outlook for this telecoms giant. As the firm invests more in its operations and builds out its fibre broadband network, I reckon earnings will return to growth. This growth could support a substantial dividend from the business, although there’s no guarantee this will happen.
Another household name I’d buy for my portfolio of UK shares is Royal Mail. This company has benefited from a surge in demand for its parcel delivery services over the past 12 months. The enterprise is planning to use these windfall profits to invest in its operations, which is the right choice, in my view.
By reinvesting profits, the firm can build on last year’s expansion, and that may translate into earnings growth in the years ahead. The investment could also help the company compete more effectively with competitors, which are constantly nipping at its heels. This is the most significant challenge the enterprise faces right now.
Another household name I’d buy for my portfolio is Just Eat Takeaway. This is one of the handful of tech shares in the FTSE 100. Like Royal Mail, the company experienced strong growth last year as the pandemic confined consumers to their homes. The group now plans to use its own windfall profits to improve awareness of its brand. However, this may not lead to growth as its deep-pocketed competitors, such as Uber Eats, are also doing the same.
Diversified portfolio
By acquiring the three UK shares outlined above, I think I can build a well-diversified portfolio across different sectors. All three companies are also experiencing strong growth and have plans to increase their footprints in the months and years ahead. When coupled with the UK economic recovery, I think these twin tailwinds could lead to solid returns.
However, investing in equities can be risky, so this strategy might not suit all investors. Especially considering the risks facing these particular businesses.