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The steps I’d take if I were getting started as FTSE 100 or FTSE 250 investor

We all have different goals for our investment portfolio. Yet the common denominator is likely to be feeling financially secure, especially later in life, and to be able to provide for our loved ones in a manner we think appropriate.

Investing goals and time horizon

If you are relatively new to investing in shares, you may first want to sit down to think about your objectives and the realistic timeframe you have in mind. For example, do you have specific life goals, such as saving for your child’s higher education, or buying a small holiday home, or building a nest egg for retirement?

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The next step is to determine your investment time horizon, which depends mostly on the goals you have set for yourself. Plans can and do change and it may not always be possible to pinpoint to the exact number of investment years to achieve a target. However if you have a plan, it is so much easier to stay disciplined when the markets do not go your way (like the last few months).

And another crucial question: how much are you ready to invest now? Are you able to let that amount of money stay invested in the markets for several years? If you are a complete novice, you may want to start small as you can always increase the amount you invest.

Know your FTSE 100 from FTSE 250?

After determining your investing parameters, it is time to understand the investment choices or the range of companies you can invest in, especially in the FTSE 100 and FTSE 250. The FTSE 100 seems to be the initial index Britons mostly consider when they first start investing. But do you know the main differences between the two indices and the shares they include?

The FTSE 100 is composed of the 100 largest companies, by market capitalisation, on the London Stock Exchange (LSE).  The FTSE 250 is the next 250 largest companies and also has a number of investment trusts. 

A significant percentage of the profits of the companies in the FTSE 100 come from overseas, giving the index a more global outlook with all the pluses and minuses that brings with it. On the other hand, if you want to concentrate on more UK-centric companies, then the FTSE 250 would offer you more choices closer to home. 

As you start learning more about the investment choices available, you are likely to feel that some companies may be more appropriate for novice investors. For example, you may want to initially stay with larger cap shares as well as those with high (but reliable) dividend yields. You probably would not put all your eggs in the same basket, but instead, diversify among several shares or investment trusts.

The market is always right

The market always humbles me as I cannot know when it will exactly turn up or down. It will do what it wants to do – and yes “the market is always right,” as the saying goes. I may not necessarily like the trend and its day-to-day effect on individual shares. However, I know that a clear focus and cool head will help me achieve my goals and the same is true for you.

So for the New Year, I’m going to reflect on 2018 objectively and what it can teach me to help me get closer to my destination in 2019.

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Views expressed 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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