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How I’d start investing in FTSE 100 stocks with £500

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When I started investing many, many moons ago, I started with a small amount of money. The idea was to only invest as much in the stock markets as I would be prepared to lose, because it can happen when we are still learning the ropes of investing. I started out by listening to and reading what the experts were saying. And since there are often opinions both arguing for and against a stock, we never really know whether we are making the right choice. In any case all stock market investments are subject to risk at all points. 

FTSE 100 stocks make good investments

But here is what I learnt very early on. That while I should be prepared to risk all my initial investments, taking educated risks is really the best idea. This meant that I should not bet on fledgling stocks, but focus on more established ones, like FTSE 100 stocks. This significantly lowers the probability of my losing all my money. On the other hand, I could stand to make big gains over time. 

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The FTSE 100 index typically constitutes companies that have been around for a long time and have a history of performing well. As a result, it is quite likely that not only can they survive through hard times, but also thrive again and again even after suffering setbacks. So if I had to start investing with £500 today, that is where I would start. 

Targeting both growth and income

Going by the high dividend yields available on FTSE 100 stocks as well as potential for capital gains, my ideal choices would be stocks that could give me both growth and income. My criteria for income stocks would be those that yield more than 4% dividend yield. With inflation expected to be at these levels in the next year, the least I require is that my real returns should be positive. 

The good news is that there are plenty of stocks from utilities to miners that offer me such dividend yields. But I am also going for capital growth. And with the latest omicron virus now impacting investor confidence and potentially the pace of economic recovery, I am not sure if capital gains will be as easy to come by now as they were during the past year, when the stock markets were on the up. 

Stocks to buy

However, there are still choices that I could make wisely that would reap me capital gains and dividends. These include stocks like high-performing utilities and financial services companies that have shown growth in both revenues and profits over time.

Moreover, if I have a long-term investing time frame, which we at the Motley Fool encourage, I could even buy cyclical stocks. These might see a slower 2022 if the virus creates widespread panic again, but this might just be a good time to buy them. Because once the recovery resumes, stocks like real estate, industrial metal miners and oil biggies could become gainers once again, that offer me both growth and dividends. 

My takeaay

Ideally, I would like my initial investment to encourage me to invest more in the stock markets. The returns might not always be visible in a day, or a week or even a year, but I reckon that if I make judicious choices, they could hold me in good stead over time. 

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Manika Premsingh has no position in any of the shares 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.

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