When it comes to buying shares for the first time, it can be hard to know where to start. There are thousands of companies listed on stock exchanges around the world. Were I to start investing today, I would do so by setting up my portfolio and buying a couple of UK shares. Below I explain why I would take this approach.
Setting up my portfolio
When I say setting up a portfolio, I simply mean a vehicle through which I can buy, hold or sell shares. To do that, I also need some sort of share-dealing account. One popular type is a Stocks and Shares ISA.
Doing that would give me the ability to trade shares. I would also need to put some money in to buy shares. If it was my first time investing, I would be tempted to start on a small scale. That would limit my upside potential if the shares did well. But more importantly, it would also reduce my risk. As a new investor it can be easy to make simple mistakes when evaluating shares. Learning from missteps could help me become a better investor in future – but I would prefer any mistakes to be relatively cheap, not expensive ones. Over time, as I felt more confident in selecting shares for my portfolio, I could increase the money I invested.
Buying the market
One of the first shares I would buy to start investing would be an index tracker fund, such as the Vanguard FTSE 100 index Unit Trust. Such funds invest in a basket of shares that broadly represent a leading index, in this case the FTSE 100. That would offer me diversification, even when buying a single stock. Effectively I would be buying tiny slivers of all the companies in the FTSE 100 index, through the fund.
I also think I could learn more about shares by getting to grips with the dynamics of the FTSE 100. For example, why does the index not necessarily go up when there is a rally in tech shares? Why is the FTSE 100 dividend yield notably lower than the yield from some individual shares? Why do the FTSE 100 and FTSE 350 indices not move in lockstep? The more I focused on the FTSE 100, the more I think I could learn about shares in general. That would be a good foundation for my later investments.
I would start investing in a supermarket
So where else would I invest? A supermarket is a good places to buy most things. While Tesco does not sell shares on its shelves, I would be tempted to add Tesco shares to my portfolio.
Why would I go for this supermarket chain as the second share in my portfolio? The reason is that it is a stalwart of the UK economy. The company is the largest supermarket in the UK and has a growing online operation. That exposes it to risks, such as online competition hurting profit margins. But it also means that the firm is something of a proxy for the UK economy overall. Whereas some retailers see a dramatic drop in demand when the economy stumbles, a grocery chain like Tesco makes a lot of its revenue selling essential food and household items. That means its earnings ability is fairly robust.
Christopher Ruane has no position in any of the shares mentioned. 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.
Motley Fool UK 2022