I think the FTSE 100 is a good place to start investing in UK stocks, and this is why. Firstly, the UK stock market contains over 500 companies ranging from the best of the best to a poor excuse for a business. The FTSE 100 is the most well-known UK financial index, followed by the FTSE 250. Together they make up the FTSE 350.
The top 100 UK listed companies, measured by market capitalization, are in the FTSE 100 and the next 250 in the FTSE 250. Both these indexes contain quality UK stocks that have reached a level of acceptance in society and thus a notable market cap.
Of course, that’s not to say there aren’t a few questionable companies in the FTSE 350, but on the whole it’s a fairly good starting point for choosing quality companies to invest in for the long term.
The next well-known UK stock index is the FTSE AIM All-Share. It has a few popular companies, such as ASOS, Boohoo, and Fevertree Drinks, but it also contains a raft of penny shares that are best avoided by the novice investor for their high levels of risk.
Using a checklist to start investing
I think the key to successful investing is choosing businesses that offer value to both shareholders and consumers. That way they’re more likely to be successful far into the future.
When I’m looking for stocks to invest in, here are a few things I consider:
- A competent team at the helm, operating with integrity.
- I like to understand the business and where it stands in the current and future economic environment.
- I look for a business with an edge on its competition.
- A dividend is a nice bonus, if it doesn’t detract from the strength of the balance sheet.
Billionaire investor Warren Buffett is a good example to look to when planning a long-term investing strategy. He’s been in the game for several decades, and his phenomenal wealth paints a picture of success. While Buffet himself gets the credit for his company, Berkshire Hathaway’s wins, it’s not just him behind its success. His colleague and good friend, Charlie Munger, is also a major cog in the wheel. Their investing wingmen, Todd Combs and Ted Weschler, are very good at their jobs too. The integrity at the top goes a long way to instilling investor faith and keeping shareholders on board.
Understanding UK stocks
It’s easy to get caught up in the hype surrounding a new or exciting-looking business. But I think it’s important to take the time to understand the businesses I’m investing in. I want to hold my investments for the long term and for that reason I want to be sure I’m investing in something that’s going to outpace the competition and bring me decent shareholder returns.
Another of Buffett’s nuggets of wisdom is to invest in a business you understand. He really understands the insurance industry, and it’s become one of his most lucrative investments.
I think the FTSE 100 is a good place to start when choosing the best shares to buy now because it offers established companies with a global reach. Several of these are household names that tick the boxes on my list.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended ASOS, boohoo group, and Fevertree Drinks and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). 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.