First of all, congratulations on your decision to learn more about investing in stocks! No investor can ignore the higher potential return that shares provide over the long run. But there’s quite a bit to consider before you get started. Let’s take a look.
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, buying a small holiday home, or building a nest egg for retirement?
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, but when we have a plan, it becomes easier to weather any storms that may come our way.
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 the FTSE 100 from the 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 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 FTSE 100 company profits 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.
Which shares I’m watching now
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 may have heard seasoned investors say that a well-constructed portfolio of dividend stocks can be one of the most accessible and rewarding routes to building a substantial stream of ‘passive income’.
Also, you probably would not put all your eggs in the same basket, but instead, diversify among several sectors.
With that in mind, here are several FTSE 100 and FTSE 250 stocks I’m watching right now. I’d be willing to invest in them in 2020, especially if there is any dip in their share prices.
- Aviva – dividend yield 7.4%
- Centamin – dividend yield 5.9%
- Diageo – dividend yield 7.5%
- Dunelm Group – dividend yield 2.3%
- Lloyds Banking Group – dividend yield 5.7%
- Pets at Home Group – dividend yield 2.4%
- Unite Group – dividend yield 2.3%
- WPP – dividend yield 6.2%
Finally, you could also buy into a FTSE 100 or FTSE 250 tracker. Or you could invest in low-cost exchange-traded funds (ETFs) such as the iShares UK Dividend UCITS ETF.
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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Lloyds Banking Group. 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.