Investing in the stock market for the first time might be a little daunting. Unlike having cash in the bank, the capital is at risk when I invest. However, the upside potential can be very large, depending on the stocks I invest in. It’s important to make sure I’m confident and happy with my stock selection, as ideally I’ll be holding these for a long time.
I’ve set the amount for me to hypothetically initially invest in the stock market at £1,000. I can decide to put in more or less, but ultimately it should be an achievable percentage of my overall liquid cash. I don’t want to overcommit my funds, as this might give me cash flow problems. At the same time, there’s no point me investing just £10. That won’t make any tangible difference to my returns, regardless of my investment performance.
Once I’m happy with the amount I can afford to invest, I then want to think about what my primary aim is. Simply buying a stock because it’s in the news or because my friend bought it isn’t a good enough reason. My aim might be to generate a certain amount of return over a set period. It might be to generate income from investing in the stock market.
Depending on my aims, the stocks I then choose to buy with my £1,000 will differ. For example, if I want to generate an income, I’d buy shares that pay out dividends. And it’s important that I select good stocks with a promising future, I need to ensure that they help me to reach my end goal.
Where to invest in the stock market now
Let’s assume that my aim is to generate capital appreciation over a long time horizon. In this case, I’d look to split up my £1,000 between half a dozen stocks. I’d want to target areas that are growing quickly, or areas that could see a strong bounce-back from the pandemic.
Areas of high growth at the moment include technology, renewable energy and healthcare. Technology has been a popular area for several years for those investing in the stock market. Yet companies in that area continue to grow and have a positive outlook for growth as well. Given some of the large names here are based in the US, I can look to buy international stocks.
Renewable energy is growing in popularity given the impact on the planet of fossil fuels. This also ties in to ESG investing, another theme that’s becoming popular.
Healthcare has seen a surge due to the pandemic. With reports of the need for booster jabs, as well as large demand globally for the vaccine, I think this area will continue to see growth in the future.
Overall, if I was investing my first £1,000, I’d look to clarify my aim and then to buy the relevant stocks in that area.
jonathansmith1 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.