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Is 2026 the year you decide to start investing in the stock market? Congratulations – this could be your first step to putting yourself in the fast lane for building wealth.
Investing in stocks and shares can be a daunting business. But I think investors who keep a few basic things in mind can begin on the right track.
Understand what you own
Fundamentally, investing in the stock market involves becoming a shareholder in a business. And that means two things.
First, it means you should expect whether your investment does well or badly to come down to how the underlying business performs. Specifically, how much money it makes. Second, it means the thing to think about when deciding which stocks to buy is the company’s prospects. This is more important than trying to work out share price movements.
Ultimately, a huge part of investing well in the stock market comes down to just this. Avoiding getting distracted from these basic points is much more of an advantage than you might think.
Know what you want
Are you looking to build wealth, earn passive income, or a bit of both? Not all investors want the same thing, but figuring out what you’re looking for is extremely important. Ultimately, the portfolio you build should be influenced by what you want to achieve. There’s no single right way to invest, but not every stock is suitable for every investor.
A good example is British American Tobacco (LSE:BATS). The company’s core business looks like it’s in long-term decline, but it’s returning a lot of cash to investors right now.
That means investors looking for long-term growth probably have better opportunities available. But anyone looking for passive income might be interested in a closer look.
Analysing stocks
Most of British American Tobacco’s profits come from selling cigarettes, but it’s looking to build out a promising line-up of new products. And that makes the company interesting.
The cigarette business is probably in decline, but it does have some obvious strengths. The products are addictive, so the firm can increase prices as the number of smokers falls away.
The dividend looks secure for now, but I think that’s going to change at some point. And when it does, I suspect it’s going to be more sudden than people think. That’s why I’m wary when it comes to the stock.
Fortunately, the FTSE 100 has a host of other opportunities available for investors with all kinds of different aims.
Getting started
Over the last decade, the FTSE 100 has returned an average of 8.5% a year – enough to turn £10,000 into £22,609. That tells me it’s a good place to look for opportunities.
There are always risks, but being able to focus on what matters and block out distractions can be a huge advantage. As billionaire investor Warren Buffett says, this is much more valuable than a massive IQ.
