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The stock market has been cautiously rising lately. There have been no downside shocks or upside surprises lately. If I were just starting out in investing, I would much rather start in this kind of environment than during a period of extreme volatility. Because of two reasons. First, a consistent rise indicates that my capital will grow over time. And then there is no urgency to invest now for fear that a sudden spike will happen and I may miss the boat.
So if I had my first 500 to invest, I would do it in three steps.
Step 1: narrow the field
I am quite risk averse. So stocks of well-performing companies are ideal for me. These will usually FTSE 100 businesses. The FTSE 100 index includes the largest companies listed on the London Stock Exchanges main market.
The size of these companies is measured by their market capitalization, which is the product of their share price and the total number of shares. The only major advantage of these stocks is that they are easy to buy and sell. So when I buy them, I don’t have to worry about them being hard to sell later. These are also typically established companies that have performed well over time.
Step 2: stay tuned for the latest updates
Once I know I’m focused on FTSE 100 companies, I would keep up with the news flow about them. News and opinions about the index and the companies that comprise it are available through financial media. These include the Motley Fool, who regularly publish articles about them.
The news I would be most interested in is the bottom line. This is because performance generally determines how a stock price behaves over time and also whether or not it pays dividends. I would make a note of companies reporting other positive updates. These other updates may include policy changes favorable to the segment in which the company operates or its expansion into high-growth markets, as examples.
Then I would quickly look at the performance over time. The two quick financial numbers that I definitely wouldn’t miss are revenue and profit. If revenues grow, it means the company is growing, which bodes well for the stock price. If earnings also grow, there are also opportunities for dividend increases. A side note: I only buy stocks of loss-making companies if they are growing fast.
Step 3: take the plunge
The next step is to decide which of the companies I listed perform the best. I would also look at their stock price. If a company has an uninspiring price performance despite strong performance, I would think twice before buying it. However, my experience is that the share prices of financially sound companies increase over time.
I would base my decision on a combination of sound financial data and the rate of increase in the stock price. At the very beginning, with 500 to invest, I wouldn’t buy more than one or two FTSE 100 shares. But I would continue to build my portfolio over time.
The post How I Invest My First 500 in Stock Markets now appeared first on The Motley Fool UK.
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The opinions expressed in this article are those of the author and may therefore 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 wide range of insights makes: we better investors.
Motley Fool UK 2021
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