Starting the investing journey can be intimidating. And this is especially true of stock market investments, since it is hard to know which stocks to pick. Here are three steps to starting investing with £1,000 that I’d take if I could start over.
Step 1: define investing goals
The first step is to define my goals. For instance, I may want to build up my retirement nest egg. To this end, I would to buy dividend stocks that could over time develop a nice flow of passive income. Or I might have a big life expense coming up, for which I need to grow my capital base. To achieve this, I could buy stocks that have a high likelihood of delivering growth in investment over time.
Typically, goals will relate to both income and growth stocks. I try to divide my investing portfolio between both these types of stocks for that reason. Though, sometimes the choice is not required. For example, these days, oil biggies and mining stocks offer not just potential for capital gains but also high dividends. Of course, this is an ideal scenario but I would not depend on it. There is no way of knowing how long up-cycles in such commodity stocks last. In my view, the best way to assess whether the stock is better for income or growth, is by considering long-term trends in share price and dividend yields.
Step 2: focus on FTSE 100 stocks
Next, when I started investing, initially my focus was the best quality stocks. These are typically large companies that have been around for a long time. They are also likely to be multi-nationals, with a predictable revenue stream, if not incomes as well.
While these are typically present in the FTSE 100 index, which makes life a bit easier, it still requires researching each of these 100 companies to make the correct choices. Reading through articles on investing websites like this one, is a great way to get a perspective on which stocks to buy.
After having invested the initial £1,000 I would try and add to my investments as often as I can to ensure that my savings keep growing.
Step 3: review investments periodically
And last, I would take a close look at my stock holdings periodically. It can happen that some stocks that appeared to hold great promise, may have undergone a dramatic turn of fortune. For instance, regulations on tobacco products or the expected decline of fossil fuel usage could make these stocks unattractive over time.
On the other hand, we are witnessing the rise of electric vehicles, and clean energy solutions more generally. Stocks in these industries could see the fates smiling on them, which might not have been the case earlier. As an investor, I watch out for these long-term trends and invest accordingly to get the best returns on my portfolio.
A point to note
As a parting thought, I think it is essential to say that when it comes to stock market investing, nothing is risk free. We are buying stake in companies, which may or may not do well. In my experience, most of the time, well-chosen investments tend to do well. Some may turn out to be poor decisions, though. Overall, however, if I an able to achieve my goals, there is little to complain about!