Stock market investments can be a great way get returns on my capital over the long term, if I choose my stocks carefully. But if I am just starting out, it can be difficult to figure out where to invest my £10,000 now.
How to plan stock market investments
To narrow down my search for the right stock picks, I will ask the following questions:
- What is my goal from these investments? For instance, I may want to end up with a nice lump sum amount a few years from now. Or, I may want a steady income stream that supports me in my working years and provides for my post-retirement years as well.
- What is my capacity for risk? Typically, my risk capacity can be higher if I have much of my work life ahead of me. My risk threshold would decline over time, because I do not want to lose capital to any market fluctuations, but plan for retirement. So I would focus on safer stocks, like the FTSE 100 ones.
Once I have figured out exactly what I want from my investments, I am in a position to narrow down my search based on where I stand on the risk spectrum. If I am willing to take higher risk, then I can consider smaller stocks that have high growth potential. On the other hand, if I am risk averse, I would be keen on safer stocks that keep my capital intact and promise me a passive income.
High risk stocks to buy
All of us investors fall somewhere on this spectrum. The good news is that there is plenty of choice, wherever we may find ourselves.
Shares in industries like cannabis or cryptocurrency stocks are super high risk but they may well turn out to be high reward investments as well. With £10,000 to invest, I could put 1% or 2%, or £100–£200, in these stocks. Since many of them are penny stocks, even this amount could buy me a decent number of shares.
Medium risk stocks to buy with £10,000
I am more inclined towards less risky stocks, among FTSE 250 companies. These may fluctuate over time, particularly if they are cyclical stocks like miners or airlines. But as long as they have a history of profits and growth as well as potential, I think they are better bets for my portfolio. Besides this, they may just pay a small dividend.
Low risk FTSE 100 stocks
Finally, I like FTSE 100 stocks. These get the biggest share of my £10,000 investment as relatively low risk bets with plenty of options to choose from. Among these, the best investments for me are those that combine both growth and dividends right now, like commodity stocks.
But there are others too. Like pretty much steadily rising healthcare stocks, that I believe will grow my capital slowly and steadily. There are also more promising growth shares like food delivery providers and retailers, that can do particularly well in a strong economy.