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Why I’d start investing in the stock markets now

Screen of various price trends, possibly in FTSE 100
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In early trading today, the FTSE 100 index touched 7,400 before falling slightly. This is an encouraging sign that today’s trading has carried forward yesterday’s momentum. It is particularly heartening after seeing the investor nervousness caused by the Omicron variant over the past few days. Despite the recent dips though, the index and the stock markets have made progress over the year. 

Not too weak or too strong

If I were to start investing today, this would be a good place for me to begin. The stock markets are not so weak as to be completely demoralising for me just when I start investing. And they have not moved up so high that there is little upside left. In fact, I think the FTSE 100 index could do quite well even next year as long as the recovery gets stronger. 

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Investing for capital gains…

This environment could be quite good for growth stocks, which can earn me big capital gains over time. I would particularly look at buying cyclical stocks like FTSE 100 banks and oil giants. These stocks have made a lot of progress in the past year, but they are still trading below their pre-pandemic levels. I reckon that they could stand to gain the most in 2022. 

…and for dividends

Another reason I like banks and oil stocks is their potential for dividends. They have all started paying dividends again, but their dividend yields are still much lower than many other FTSE 100 stocks. I am hopeful that these can increase over the next year, though. Oil companies are expected to continue turning in strong results as crude oil prices remain elevated. This could lead to higher dividends. 

Similarly, banks are now free to set their own dividends. Until recently, they were required by regulators to limited their dividends, to ensure stability in the financial system and the economy. So, they too, could pay bigger dividends in the future. 

Good passive investing buys for me

I would, however, also look at other dividend stocks that could earn me a steady stream of passive income over the years. Stocks like utilities are a good place to start, because they have paid dividends consistently over the years. And their dividend yields right now are higher than the FTSE 100 average, which is 3.6%. 

But I would also consider stocks that might have low dividend yields at present, but that have managed to grow their dividends fast over the years. These could turn out to be the best dividend stocks for me to buy over a long enough holding period. This is because the yield on my initial investment can become quite big over time. 

The risks and takeaway

There is always a chance though, that 2022 might not turn out to be a good year for the stock markets. The Omicron variant could derail the recovery and even send us back into lockdowns. But I am quite optimistic that it can be brought under control. The cases are limited in both numbers and severity so far. I think the opportunities for me to make gains from stock market investing are far bigger than the risks right now. 

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Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still 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.

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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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