I think that right now is a great time to start investing. At 93 years old, Warren Buffett is still actively buying shares, so it’s never too late to be making moves in the stock market.
Whether it’s building wealth or earning passive income, buying shares in profitable businesses can be a great use of excess cash. But which stocks are best for someone with no experience start with?
All of them
Choosing which shares to buy can be tricky, even for the most skilled investors. Fortunately, though, it’s possible to start investing without having to do this.
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Putting money into an exchange-traded fund (ETF) is a way of investing in a range of businesses. The Vanguard FTSE All-World UCITS ETF is a good example.
The fund contains shares in companies from all around the world. This includes the UK, the US, and the Middle East.
It has holdings in 3,664 stocks. The largest of these is Apple, but this only accounts for just over 4% of the entire portfolio.
There are a lot of positives to investing in an ETF like the Vanguard All-World fund. It allows investors to participate in the growth of global business without having to analyse specific stocks.
There are downsieds to ETFs, though – I often find they contain shares I don’t want to own mixed in with those I do. So which shares are best for beginners who don’t want to buy ETFs?
Choosing shares to buy
The answer is, it depends. Investing well is about buying shares when others are underestimating their value and this means being able to recognise when a stock is selling for less than its worth.
This involves understanding a company better than the average stock market participant. That sounds like quite a challenge, but it might be easier than it seems.
Work, hobbies, and even everyday life can give investors an advantage. It might be, for example, that moving house causes someone to realise how difficult it is to do this without Rightmove.
Alternatively, shopping at Tesco could bring someone to appreciate the way in which the Clubcard scheme incentivises customers to keep shopping there. Neither of these needs special expertise.
Equally, someone who runs their own business might appreciate the size of the branch network Lloyds operates. This could be a reason for thinking that the business has a distinctive strength.
Ultimately, deciding to invest in individual stocks involves figuring out which stocks are being underappreciated by the rest of the market. So having some sort of insight is crucial.
The golden rule
According to Warren Buffett, the first rule of investing is not to lose money. And the second rule is to not forget the first one.
The best way for investors to follow this rule is to stick to buying shares in businesses that they are able to recognise as undervalued. Exactly which these are will vary from person to person.
This is true for someone starting out and more experienced market participants. Staying within what Buffett calls an investor’s ‘circle of competence’ is the best way to limit risk and maximise returns.
