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I’d start buying shares with this pair!

Young Caucasian woman with pink her studying from her laptop screen
Image source: Getty Images

One thing that can be daunting about trying to start buying shares is simply deciding exactly where to begin.

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

But if I was about to start investing for the first time, here are a couple of shares that would be on my shopping list.

Unilever

Consumer goods company Unilever (LSE: ULVR) has products in the homes of most people in Britain – and far beyond.

Focused on everyday products like shampoo and laundry detergent, the business benefits from strong ongoing demand from customers. Even when there is a recession, people wash their hair.

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But lots of other companies also compete in these areas. How does Unilever set itself apart?

One way is by building premium brands such as Dove, often using proprietary technology and compelling advertising. That helps build consumer loyalty, meaning Unilever can charge a price premium even for mundane products.

That does not mean Unilever is risk-free: no share is.

It faces challenges such as ingredient inflation, spinning off its ice cream division without disruption to the rest of the business and shifting consumer tastes. All could hurt revenues and profits.

But overall I see this FTSE 100 member as a comparatively low-risk business.

It pays a quarterly dividend and yields 3.9%. So if I started buying shares by putting £1,000 into Unilever, I ought to earn £39 in dividends each year, if it maintains the payout.

That is never guaranteed: dividends can be cut. Then again, if the business does well, I actually expect Unilever to increase its dividend.

City of London Investment Trust

But while I might start buying shares by investing in Unilever, I would not only do that.

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

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

After all, even the most promising looking business can run into unforeseen difficulties that hurt its business performance and its ishare price.

Diversifying can seem tricky if investing a fairly small amount of money. One solution can be buying shares in an investment trust. That is a pooled investment vehicle, meaning its managers buy different shares and I can effectively get exposure to them by buying a share in the trust.

Blue-chip focus

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

There are risks to a trust like this. Management fees eat into returns over time. If managers make the wrong calls, the trust may fare poorly.

In fact, in the past five years, City of London shares have lost 4%.

Set against that, though, is a 5% dividend yield – and a track record of dividend increases stretching back to the year England lifted the World Cup! Remember, though, that past performance is not necessarily a guide to what happens next, in the stock market as well as at Wembley.

The reason I would start buying shares by investing in a trust like this is because I feel following its progress with flesh in the game ought to help me learn about how the stock market works, while maintaining a risk profile I am comfortable with.

The post I’d start buying shares with this pair! appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever Plc. 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.

Motley Fool UK 2024