The Motley Fool

Investing money in the stock market? I’d start like this

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Person using calculator next to charts and graphs
Image source: Getty Images.

I reckon it’s a great time to think about investing money in the stock market, even if you’re doing it for the first time.

We arguably saw the worst of the current recession during the second quarter of the year. And the stock market crash in the spring blew the froth from share prices and knocked down, or out, some of the weaker companies.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Why I’d start investing money in the stock market

There’s been a shake-up since, with strong players adapting to a Covid-19 environment well. Those companies’ shares have been bouncing back. Others still languish. Generally, I reckon the stock market has got most things ‘right’ since the crash, and most shares are where they ‘should’ be.

It’s worth considering that bull runs begin at the bottom of bear moves. And the re-setting we’ve seen has cleared the way for strong businesses to thrive from here. Meanwhile, in the real UK economy, several shorter-term challenges could recede soon.

For example, the UK will have completed its free trade agreement negotiations with the European Union by the end of the year. And the long-running saga of Brexit may begin to fade. On top of that, the world may see a vaccine for Covid-19 soon.

If you invest for the long-term you’ll have a tailwind behind you. Indeed, over timescales measured in decades, the trajectory of the stock market has always been up. So the prospects for investors look good over short and long timescales.

And I’d begin by building a bedrock in my portfolio of tracker funds and investment trusts. But with a little bit of investing experience under my belt, I’d aim for even higher returns by choosing the shares of individual companies.

One overriding consideration

Some investors focus on the cheapness of valuations before anything else. If you look at fallen share prices and see low earnings multiples and high dividend yields, you’re looking at cheap shares. Or if earnings have ‘temporarily’ plunged because of a short-term event – such as the current pandemic – we could deem a share cheap just because it’s fallen.

Another approach involves looking for shares that are leading the market and trading at new highs. Often, operational progress in the underlying business drives those stocks higher and the strength could flag a strong underlying business. A third approach ignores share price movements altogether and focuses on dividend yields. The idea is to collect and compound dividend income rather than to rely on share price movements to deliver a capital gain.

All those investment strategies can be successful. But I reckon one consideration overrides all others when selecting shares – quality. Indeed, Warren Buffett aims to buy what he describes as “wonderful” businesses to hold for the long term. He’s focusing on the quality of the underlying enterprise above all other considerations. And I reckon that’s the safest and most effective way to approach investing.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.