I think that deciding to start investing is a great financial decision. It can be difficult to know where to begin, but it is not difficult to actually start. Let me take you on my own journey.
My first goal is to amass £1,000 in capital. It means saving £20 a week for a little under a year. With UK inflation at 2.5% and banks offering less than that in interest, £1,000 left in a bank account becomes worth less in real terms every year. This means that once I have my £1,000, it’s best to start investing.
What’s my long-term goal?
Everyone has different goals. My first is to start a nest egg for my child for when he reaches 18. Accordingly, I am investing my first £1,000 in a Junior Stocks and Shares ISA. This ensures he’ll have capital when he reaches adulthood. In this instance, I want to generate a decent lump sum over a couple of decades.
Different goals usually mean different investment strategies. If I’m investing money to grow my house deposit, then I’d want to invest my £1,000 in low risk stocks. If I’m trying to generate passive income, I might be prepared to buy riskier stocks for the benefits of high dividends and rapid share price increases.
It’s crucial to honestly assess my attitude to risk. Generally, it’s considered suitable for younger investors to take more risks because they can hold their assets through market fluctuations. Older investors who are approaching retirement often don’t have the luxury of time, so may have to sacrifice potentially higher returns for safer stocks. But one’s specific circumstances may mean those general guidelines don’t apply.
I will start investing by putting £500 into low risk stocks. These will likely be FTSE 100 giants that I hope will consistently rise and help increase my initial investment through compound interest. One is Unilever. It’s a reliable stock that pays a 3% dividend every year. I only want to invest in companies that I understand, and I’m certain that consumers will be shopping for Unilever groceries until I’m well past retirement age.
I’ll invest the next £400 into medium risk stocks. These will generally be FTSE 250 or AIM stocks. A good example is Bacanora Lithium. I like the prospect of cashing in on the electric vehicle revolution, but lithium mining projects have no guarantee of profitability.
I’ll invest my final £100 in high risk stocks. I recently covered Blackberry, which I think has a volatile share price but decent long-term potential. Other possibilities might include exploratory mining stocks such as Scotgold Resources, or cannabis stocks like Sundial. The potential for lucrative returns can be tantalising, but I could also lose most of my investment. Therefore, moderation is key.
The UK stock market has been on a bull run since the 2008 financial crash. Many investors haven’t experienced the sinking feeling of watching their entire portfolio drop. I want to always remember that the FTSE 100 hit a high of 6,457 in 2007, a low of 4,434 in 2008, and is worth 7,124 points today. As Warren Buffett says, “the stock market is a device for transferring money from the impatient to the patient.” I’ll only start investing if I have the patience for the long haul.
Charles Archer owns shares of Bacanora Lithium, BlackBerry, and Unilever. The Motley Fool UK has recommended BlackBerry and Unilever. 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.