Stock market

I will start buying shares with this pair!

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One thing that can be confusing about trying to start buying shares is just deciding where to start.

With thousands of different companies listed on the British and US stock markets alone, the options can sometimes seem overwhelming.

But if I were to start investing for the first time, here are some stocks that would be on my shopping list.

Unilever

A consumer goods company Unilever (LSE: ULVR) has products in most people’s homes in the UK – and beyond.

Focusing on everyday products like shampoo and laundry detergent, the business benefits from continued consumer demand. Even when there is a recession, people wash their hair.

But many other companies also compete in these areas. How does Unilever differentiate itself?

One way is that premium brands such as Pigeonoften using proprietary technology and aggressive advertising, helps build customer loyalty, meaning Unilever can charge a price premium even for mundane products.

This does not mean that Unilever is risk-free: there is no share.

It faces challenges such as ingredient inflation, discontinuing its ice cream distribution without disrupting the rest of the business and changing consumer tastes. All can hurt revenue and profits.

But overall I see this. FTSE 100 Member as a relatively low risk business.

It pays a quarterly dividend and yields 3.9%. So if I put £1,000 into Unilever and start buying shares, I should earn £39 in dividends every year, if it keeps paying.

It is never guaranteed: profits may be reduced. Then again, if business does well, I actually expect Unilever to increase its profits.

City of London Investment Trust

But when I can invest in Unilever and start buying shares, I won’t just do that.

Why? A simple but powerful risk management technique for investors large and small is diversification.

This basically means not putting all my eggs in one basket.

After all, even the most promising business can run into unexpected difficulties that hurt its business performance and its share price.

Diversification seems difficult if a relatively small amount of money is invested. One solution may be to buy shares in an investment trust. It is a pooled investment vehicle, meaning its managers buy different shares and I can effectively gain exposure to them by buying shares in the trust.

Blue Chip Focus

There is an example. City of London Investment Trust (LSE: CTY). The trust invests in dozens of mostly British blue-chip companies.

There are risks to such trust. Management fees eat into returns over time. If managers make the wrong call, trust can be damaged.

In fact, over the past five years, City of London shares have fallen by 4%.

In comparison, though, that’s a 5% dividend yield – and a track record of dividend increases stretching back to the year England won the World Cup! Remember that past performance is not necessarily a guide to what will happen next, in the stock market as well as at Wembley.

The reason I started buying shares by investing in such a trust is that I feel that following its progress in the game should help me learn how the stock market works, a risk profile. Keeping what I’m comfortable with.


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