With over 2,500 companies listed in the UK you'll be spoilt for choice. There are a number of criteria you might want to consider before making investments. A good place to start is by reading newspapers and magazines. Don't just look at the financial section but also check to see what's happening in the main news. What products are in vogue? Other things to consider are:
- The size of the company. Smaller companies represent a higher risk but have much higher growth potential.
- Are you looking for growth or for income? Some companies pay dividends, providing you with income, whilst others invest their earnings in growing the business.
- What area do you work in? Do you have specific knowledge about a particular sector? This could give you an edge over other investors as you know more about what companies in this sector are dealing with.
It's worth practicing with some 'virtual' money before you start to make real investments. Play the Virtual Trader game at VirtualTrader.co.uk and invest a virtual £100,000 in the UK market. It's a great way to see how you would do in real life, without risking any real money. After building up your confidence you'll feel much happier investing your hard-earned cash.
How do I pick specific stocks?
Now that you’ve got an idea of the type of stocks you’d like to invest in, it’s time to take a closer look. Things that can help you in your search are:
• Company Annual Report: This is not the most up to date information about a company but provides a decent starting point. The annual report will give you an idea of the company’s business, developments, future prospects and of course all the current financials.
• Investor Relations Information: Most companies will provide information intended specifically for investors on their website. This information can keep you up to date with the latest developments, but don't expect too much bad news.
• Research Reports: If you are looking for an impartial view on a company there are a number of places to find independent research.
Are there any other things I should keep in mind?
• Make sure your portfolio is well-balanced: It's always best to spread your risk by investing in a number of sectors. That way, if a particular industry experiences a downturn this won’t affect your entire portfolio.
• Invest a sensible amount of money: It doesn't make sense to invest very small amounts. After commissions (and spreads) the price will have to move significantly just to earn back your initial investment.
• Keep dealing costs to a minimum: It's worth shopping around for the most favorable commission as this varies considerably from one broker to the next. To find some of the best deals currently in the market check out our investor center.
• Look for longer term rewards: It's very difficult to make huge profits overnight but historically, looking at the performance of shares over a five year period, the rewards can be very worthwhile.
• Know when to cut your losses: You can't always pick winners, so sometimes you'll have to cut your losses. Make sure to keep a close eye on your investments so you know when it’s a good time to sell.