Getting started in the stock market can be a daunting experience.
Don't get me wrong – it can be incredibly exciting too, what with the enormous gains that can be recognised literally overnight. But it can be daunting. Particularly without guidance or an idea of where your money could be appropriately invested.
For those of you who are reading this article hoping for a list of five companies that could fund your first home or make you as rich as Warren Buffett in two years' time, you probably won't find what you're looking for here, but you will find an effective way of getting started.
Instead of speculating over stocks which may or may not become "the next big thing", it is important to first build a solid foundation to support your portfolio against any volatility in the market (limiting your risk). Here are five companies which you should consider adding to your collection to begin with:
Telstra Corporation Ltd (ASX: TLS): The telecommunications giant is one of Australia's most widely held stocks, and for a good reason. Its attractive 5.7% fully franked dividend yield alone is more than what you could expect from investing in a term deposit, while the company also has enormous growth upside. Trading at just $5.08 a share, Telstra would be the perfect addition for any investor, let alone an investor just beginning their journey.
Coca-Cola Amatil Limited (ASX: CCL): The beverage distributor's brands are amongst the strongest in the world but a dismal performance in 2013 has seen its shares tumble to an attractive price of $11.27. The issues facing the business appear short-term in nature, making now a fantastic time to buy. It also offers a partially franked 5% dividend yield.
Amcor Limited (ASX: AMC): The global packaging business has been a solid performer for shareholders over the last five years and earnings will continue to improve thanks to an improving global economic outlook and a falling Australian dollar. Shares are currently trading at $10.27 and offer a trailing 3.9% dividend yield.
REA Group Limited (ASX: REA): Buying the digital advertising business would be a great way to take advantage of the improving Australian real estate market. Although it has already delivered enormous growth for long-term shareholders, there are still gains to made. For all it's worth, Bank of America Merrill Lynch has forecast the share price to hit $100 in the next two years, compared to its current price of $50.90 (analysts' forecasts should only ever be taken with a grain of salt, but are still an indicator of a company's prospects).
M2 Group (ASX: MTU): One of my favourite prospects is still in its early stages of growth. After having spent a number of years acquiring quality businesses such as Dodo and iPrimus, the stock has been a solid performer and will likely continue to be as it turns its attention towards paying down debts and growing organically. Its 3.8% dividend yield is the icing on the cake.
Foolish takeaway
Like most other investors, Warren Buffett didn't get rich by trying his luck and investing in speculative stocks. He bought quality companies trading at discounted prices and held on for the long-haul, taking advantage of their growth and any dividends that were distributed.
