You’re considering investing £1,000 a month, but can’t quite bite the bullet and get started. Here are some tips to get you going.
Diversify your portfolio
£1,000 is a good amount to invest in one share, so do your research and each month buy a different stock. Vary the sectors you buy stocks in and ensure the shares you buy have value.
Consider occasionally buying index funds or bonds to further diversify your portfolio and reduce overall risk.
Value investing
Value comes from a reasonable price-to-earnings ratio, a dividend, and the quality of the business model along with the integrity of management.
Potential for growth
Not all established companies have much room for further growth, but some will look to get into emerging markets or to take advantage of new trends (e.g., tobacco companies moving into vaping or CBD, automakers moving into electric vehicles).
A couple of stocks I think could be worth considering for a long-term portfolio are Admiral (LSE:ADM) and Halma (LSE:HLMA).
Admiration for Admiral
Car and home insurance firm Admiral has a dividend yield of almost 6%, its price-to-earnings ratio is 15, and its earnings per share are £1.37. The insurance industry is cyclical and the risk of unforeseen claims can be off-putting to potential investors.
This cyclicality comes in waves of profit and loss. Losses lead to the tightening of regulation and increasing of premium rates. This brings in more capital and increases premiums, but then competition increases, pushing down the premiums while relaxing the underwriting standards. It can be unpredictable and is one reason shareholders shy away from insurers.
Legendary investor Warren Buffett has arguably built his wealth on the back of the insurance industry and in Admiral’s case, it comes with a very enticing dividend.
FTSE 100 insurer Admiral uses reinsurance extensively on its policies, which reduces the amount of capital being paid out in claims and keeps cash on hand to pay its generous dividends.
Medical marvel
An alternative FTSE 100 stock that has caught my eye is Halma. This life-saving tech company released positive record profits, dividends, and revenue in its half-year results. It’s also on track to continue this growth through the second half of the year.
Halma has low debt with a ratio of 28%. Less debt gives more room for future leverage and is a great advantage for a company to have.
It is a business with its fingers in several juicy pies, namely safety, medical, and environmental services. This shows it’s positioned nicely to enjoy the rising pressure on climate sustainability, the world’s ageing and ailing population, and tightening safety regulations in industry.
It seems many shareholders have already seen the merits of Halma and as such its price-to-earnings ratio is a very high 45. This deems the share overvalued, so I would hang fire on purchasing it.
Its dividend yield is less than 1% but has shown an incredible track record of growth with 21 consecutive increases. Earnings per share are 44p and as it has a lot of plus points, I will keep my eye on it for a future opportunity to buy on a dip.
Overall, I think you’ve got little to lose and a lot to gain by investing your regular lump sum in the stock market. It’s an exciting way to save for the future and potentially build yourself a sizeable nest egg.