3 things to consider before you start investing
A lot of people try to build long-term wealth through owning shares. But lots of other people plan to start investing yet never get around to it.
Rather than dreaming of getting into the stock market without making it a reality, I think, like many other parts of life, this is something that needs a plan.
Based on my experience, here are three things I think it is helpful to consider before one starts buying shares (and indeed, even as an experienced investor, when building a portfolio).
1. Choosing the right investment vehicle
I cannot buy shares directly from BP or Vodafone. To invest in listed companies like them, I need some way to buy, hold, or sell shares.
There is a plethora of options available.
For example, I could set up a share-dealing account. Depending on one’s circumstances, it could be financially advantageous to wrap such an account in a tax-efficient vehicle, for example by investing through a Stocks and Shares ISA.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
I think it is worth spending some time and effort to look into the different options. After all, no two investors are the same.
2. Cultivating a habit of regular contribution
Of course, an ISA on its own has no use – it needs money inside it before one can start investing.
If I had a lump sum, I would be happy to put it in the ISA. But I also like to aim for a regular contribution.
I think setting a target here can be a useful form of self-discipline, helping convert my positive intentions to practical action. In reality, some times money may be tighter than others. With December now just days away, an expensive month lies ahead for many of us.
That makes it even more useful, in my view, to have a target for regular contribution – even if in practice, life sometimes gets in the way.
3. Matching investment style to investment objesctives
Some people want to start investing because they believe they can spot a share that will soar in value by thousands of percentage points in a matter of years, as Nvidia has.
I understand that dream (and would be thrilled with such a result myself!)
But the reality is that most investors achieve far, far more modest returns – and may make losses. So I think it is important to start investing with a realistic mindset – and keep it that way!
That is why one share I think new investors ought to consider is City of London Investment Trust (LSE: CTY).
In practice, while this share may outperform the wider UK market, I doubt it will do so dramatically. After all, the trust invests in a variety of well-known shares and is mostly focused on British companies. Its long-term price performance I would characterise as solid rather than stellar.
In fact, that fairly mainstream approach is also what I like about City of London. The UK focus brings a risk that a sudden downturn in company outlooks could hurt performance – Budget tax rises have already led a number of companies to warn of higher costs, for example.
However, as a long-term investor, I remain confident about the outlook for the UK economy. I also like City of London’s decades-long streak of raising its dividend per share each year.
The post 3 things to consider before you start investing appeared first on The Motley Fool UK.
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C Ruane has positions in Bp P.l.c. The Motley Fool UK has recommended Nvidia and Vodafone Group Public. 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.
