How much money do I need to start investing?

It’s a myth that only rich people invest. Here, we look at how to start investing with little money.

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Warning: your capital is at risk. The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results.
When you think about investment, you probably imagine City workers with tailored suits and heavy watches. But more and more everyday people are taking responsibility for their own investments, and in today’s online world it’s easy to do so without busting your budget.

How much do I need to start investing?

It doesn’t take millions or even thousands of pounds to begin investing. At the UK’s most popular do-it-yourself investment website Hargreaves Lansdown, you can invest for as little as £25 per month, or with a lump sum as small as £100. That’s birthday-card-from-nan kind of money.

There are other options where you can invest even less. With the app Moneybox, for example, you can get started from just £1, and grow your investment pot by automatically rounding up purchases to the nearest pound, so you barely notice it at all.

Another mobile option is Wealthify, which lets you simply choose your risk level and again allows you to invest from just £1.

Beware the investment fees

  • Although some companies let you invest a very little amount, some charge a flat rate to use them. Moneybox, for example, charges £1 per month. If you only have a few pounds, this amounts to more than you would likely make from your investment. It does help to have at least a small lump sum to start off.
  • Hargreaves Lansdown charges a percentage – specifically, it takes 0.45% of the total amount you have invested with them every year. This is especially appealing for people with less to invest as it means they are getting the services offered by Hargreaves for a very cheap price.

Investment options?

There are two things to think about when you invest: what your actual investments are, and what kind of product or ‘wrapper’ you are keeping them inside. Different wrappers have different benefits. There are two wrappers that give you good tax advantages: ISAs and Sipps.

ISAs or Sipps?
  • ISAs (individual savings accounts) : These let you avoid paying tax on any interest or capital gains you make on assets held within, and you can put up to £20,000 in the 2018/19 tax year. However, if you aren’t investing very much, these tax benefits will make little to no difference to you, because dividends of less than £2,000 are not taxed anyway, and capital gains that are less than your allowance (which varies depending on income) escape tax as well.
  • SIPP: If you can afford to put your money away for longer, self-invested personal pension (SIPP) might be of more interest. Because it’s a type of pension, when you put money in a SIPP you will get back the income tax you will have paid on it. For a basic taxpayer, this equates to an automatic 25% boost to the amount you invest. Pretty enticing.
  • Plain investment account:You can also invest in a plain investment account, which doesn’t offer any tax advantages but has no upper limit to the amount you can invest.
  • Conclusion:If you will need the money before you retire, you should either invest in an ISA or a general investment account. If you want the tax boost and can hold off accessing the money, use a Sipp.
What to invest in

The second thing to consider is what to invest in. You could buy individual shares, but stockpicking is notoriously difficult even for weathered professionals. It also tends to be more expensive than buying financial products such as funds, so for someone with not much to invest you may instead decide to buy a fund, which is a bundle of shares selected by a fund manager.

Other similar products include exchange traded funds and index funds, which hold shares to match an index (think the FTSE All Share or similar) rather than being picked by a manager. These tend to be cheaper than actively managed funds. Some funds have minimum investments, so you may find your choices limited if you have very little to invest.

How often should I be investing?

If you’re trying to build up an investment pot while staying within the bounds of a tight household budget, try to put at least £25 per month away. This is the minimum amount Hargreaves Lansdown allows, but at the same time it will let you build up a surprisingly satisfying pot in a relatively short time. You can always scale up your contributions when you have more disposable income.

How long should I invest for?

Investing is not an instant-gratification kind of thing. From one day to the next the value of your holdings will rise and fall. You don’t want to have to sell your investments at a bad time, and the longer you remain invested the more your returns (capital growth and dividend payouts) will be able to compound.

Prepare to be invested for five years at least, and longer if you can.

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Updated October 19th, 2019
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From £7.99 on the Investor Service Plan
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Updated October 19th, 2019
Name Product You'll invest in Open with Target return Protection scheme
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Shepherds Friendly Stocks & Shares ISA
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In conclusion

Investing is no longer the preserve of the rich. You can start investing with very little money – with sums as small as a single pound in some cases, and with slightly larger but still entirely manageable monthly amounts in other cases. In fact, for such little money, why not have a go? You may get the itch to start putting more away. And as long as you are aware of the risks, and aren’t investing more than you can afford, you have the chance to start growing that portfolio sooner than you may have thought. You could begin right now.

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