Deciding where to invest can prove to be difficult, given the range of options available to investors. Online sharedealing means that related charges are relatively low, while it’s possible to invest in a wide range of markets. And with the stock market having fallen since reaching an all-time high in 2018, there could be numerous opportunities available to new investors at the present time.
With that in mind, here’s how I would invest my very first £2,000 today.
Accounts
Before even considering where to invest any sums of money, a good place to start could be the type of account used to invest it. A bog-standard sharedealing account may not provide the same level of tax advantages as accounts such as an ISA or a SIPP. For example, all contributions to a SIPP are tax-free, while an ISA shelters an investor from capital gains and dividend tax. Other products, such as a Lifetime ISA, may also be of interest depending on an investor’s personal circumstances. In the long run, even relatively modest amounts of tax savings could lead to significant sums of money.
Diversify
While diversifying may not be the most appealing idea to many new investors, it could help to reduce risk and increase total returns. Although the general risks involved in investing in the stock market would not be reduced by buying a range of stocks, company-specific risks would pose less of a threat. This means that if a particular stock releases negative news, or its market value falls for whatever reason, it would have a smaller impact on a diversified portfolio than it would on a concentrated portfolio.
Since sharedealing charges have fallen significantly in recent years, it’s now possible for investors with modest amounts of capital to own a range of shares without paying significant charges. Furthermore, aggregated orders could cut dealing charges yet further by grouping orders together, with such a service offered by many of the major sharedealing providers.
Fundamentals
Focusing on a company’s fundamentals could be a sound place to start when deciding which stocks to buy. While interest rates have been low for a number of years, they’re expected to rise over the medium term. This could pose problems for companies with high debt levels, and may mean that their profitability is squeezed. As such, buying stocks with sound balance sheets, strong cash flow, and solid track records of profit growth could be a shrewd move.
With the FTSE 100 yielding around 4.5% after having fallen in recent months, now could be an opportune moment to buy high-quality shares at lower prices. Certainly, there are risks facing the UK and world economies. But such challenges may have been priced into valuations in a number of cases. As a result, now could be a good time to build a diverse portfolio for the long term.
