As a first-time investor, the recent news about the turmoil in stock markets can be off-putting. You may be wondering, who in their right mind would start investing now?
I would argue that investing for your future has never been so important. Savings rates in Cash ISAs are atrocious, and you can’t rely on the state pension to give you a financially stress-free retirement.
Combine this with university debt, a 2% inflation rate, and rising house prices, and the financial outlook for millennials looks rather bleak. That’s why investing has never been so important for achieving financial freedom. Here’s what I’d do right now.
Invest in UK companies
Taking the plunge and making your first investment is an exciting venture. That doesn’t mean it’s simple though.
With thousands of stocks, ETFs, and mutual funds to choose from, it can be difficult to know where to start.
One simple way you could begin is with a lump-sum investment in the FTSE 100 index. This provides instant diversification across a range of sectors. What’s more, the index’s overall performance often reflects the health of the UK economy. Ultimately, a FTSE 100 tracker fund is a solid choice for first-time investors looking to build a retirement fund without too much risk.
If you’d prefer more control over your investments, selecting individual UK stocks is an option. Over the long term, good quality companies tend to expand and grow their businesses, leading to an increase in the share price over time.
Think Unilever, GlaxoSmithKline,or Tesco,to name a few. These companies each have a big share of their respective markets, strong balance sheets, and prospects for future growth.
On top of this, many firms pay dividends to investors simply for owning shares in the company. If re-invested, these can provide a platform for even bigger returns over the long term.
Have a long-term strategy
I think it’s of paramount importance to have a long-term horizon when it comes to investing. Bumper returns rarely come overnight.
Instead, holding a position in quality companies for as long as possible has proved to be a dominant strategy for many investors.
What’s more, having a long-term horizon dampens the effects of a market crash on your investments. This comes as you have the time to simply ride out the peaks and troughs of the market.
For example, if you’re investing for at least the next 5 to 10 years, this market crash shouldn’t be anything to worry about. The stock market has always recovered after crashes in the past.
Reap the rewards
Investing for the long-term allows for the magic of compounding to take effect. Let’s look at some hypothetical examples:
Assuming an annual growth rate of 8%, setting aside just £150 a month to invest in a Stocks and Shares ISA would result in your investments being worth £200,000 after 30 years.
But how about this… If you were to begin saving £250 each month, assuming an annual growth rate of 8%, in 40 years’ time your investment would be worth £1,000,000!
Becoming a millionaire really is that easy. As a first-time investor, don’t miss out on the opportunity that this market crash brings to grow wealth over time.
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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Tesco. 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.