Investors will argue about which UK stocks to buy until the cows come home. But I think there’s one thing all would agree on — the best time to start buying FTSE shares is as soon as possible!
Armed with £5,000, here’s how I’d action that advice.
Laying the foundations
First, I’d open an account that would actually allow me to buy shares. In my view, a Stocks and Shares ISA is ideal. This means I won’t pay tax on any profit I make from my investments. Over time, this could amount to many thousands of pounds.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Second, I’d work out what my financial goals are. Having targets in mind should keep me motivated in periods of stock market malaise.
Choices, choices
I then need to think about what I want to buy.
There are many ways to make money in the stock market. Some people like the idea of owning high-growth companies. Others prefer those that pay out cash to their owners in the form of dividends.
Some people prefer not to pick stocks at all. They ask a professional fund manager to do so on their behalf, albeit for a fee.
Another option is to invest in low-cost index trackers that track the return of the market. This means I can never outperform. But it also means I won’t underperform either.
I actually use a combination of all of the above!
Quality stock
An example of an individual company I have a stake in is Games Workshop (LSE: GAW).
The fantasy figurines maker has a dominant hold over a niche market. Hobbyists have been spending an lot of cash on Warhammer 40,000 products in recent years, placing a rocket under revenue and profit — and the share price. I would have more than doubled my money if I’d invested five years ago!
Having signed a deal with Amazon for films and a TV series, I’m confident there’s even more growth ahead.
Games also has a good record of paying dividends. That passive income can never be guaranteed. But the cash I do receive can then be used to supplement my monthly salary, reinvested back into the company or used to buy other stocks.
That third option brings me to another important point.
Slow and steady
As a Fool, I’m committed to investing over the long term. Getting rich quick would be lovely, of course, but attempting to do so would probably involve going all-in on one stock. I think that’s a very risky strategy that could see me lose a lot or possibly all of my savings. At the least, it could prove incredibly stressful. Shares can be very volatile.
So, even though I really like Games Workshop, I wouldn’t throw all of my £5,000 at the company. For one, the shares are command a premium valuation. If sales disappoint, the share price could tumble.
Instead, I’d build a portfolio of great investments. Spreading my cash around different sorts of companies may help to mitigate any damage in the event that a few don’t perform as hoped.
And let’s not forget that I can add to the initial £5,000. Barring a disaster, the more money I can put to work, the greater my nest egg might be in time thanks to the not-so-secret investing sauce that is compounding.
This post was originally published on Motley Fool
