It’s easy to assume that investing is the territory of the wealthy – those with tens, if not hundreds, of thousands of pounds to plough into investments. In that context, if you’ve only got £100 or less left from your pay cheque at the end of the month, it can be easy to assume there’s no point in even thinking about investing. But this simply isn’t true. Here’s why.
What counts as little money is entirely subjective. But, in practice, there’s nothing stopping you from venturing into the world of investments with £100, or even less. And if you can afford to tuck the same amount away every month, and start out early in life, then over time you could surprise yourself by turning into one of those people with tens of thousands in investments.
No! Well, ok that’s not completely true. You probably need at least £1. Yep, believe it or not, this is the minimum investment amount for an increasing number of investment platforms. Several more let you start with just a tenner. So don’t let concerns about high minimum deposits put you off getting started.
That’s a good question, and the short answer is: maybe.
Investing offers the potential for higher returns than even the best cash savings. But with that potential reward comes a higher level of risk. You’ve probably heard the expression “the value of investments can go down as well as up”. In fact, it’s a regulatory requirement for all investment providers to publish this information, and other relevant risk warnings, prominently. It’s not meant to scare investors off. It’s simply to remind them of the risk that they could lose money by investing.
But you can help to minimise this risk by investing for the long term. Investments can be volatile, but over time this volatility tends to iron itself out, and result in a profit. The general rule of thumb is to only invest money you can afford to leave invested for at least 5 years, and longer if possible.
If you think you’re likely to need to take money out of your investments before that 5-year mark, then it’s probably best to use a savings account instead. And even if you don’t expect to take money out, it’s worth planning for the unexpected. We (and countless other experts) recommend that before you start investing, you build up an emergency fund in an easy-access savings account. It should aim to cover at least three months’ of essential outgoings (such as rent, food and energy bills).
But if you’re confident you won’t need the money for a few years, and already have an emergency fund, then it’s your choice of whether to save or invest your small amount of money.
You may associate investing with having to shell out for a professional adviser, some of whom will only take on clients with a certain amount to invest. The good news is that these days there are plenty of DIY online investment apps and platforms that let you open an account and start investing with very little money.
So the first step to start investing with little money is to find an investment platform that suits your budget. Many let you open an account for £1 or less. To get started, take a look at our guide to the 10 best stock trading apps and investment platforms in the UK.
If you want to avoid paying for professional advice, but would welcome a bit of support to get you started, a few options to consider in particular include:
Only having a little money might not necessarily limit what you can invest in. But it may influence the best choices if you are trying to achieve a balanced investment portfolio. This is generally considered a wise approach no matter how much money you have, as it helps to mitigate your risk. Several options to consider include:
Funds are collections of assets. These assets can be primarily or all stocks, such as funds that track a stock index (index funds or ETFs). Or, they can comprise a mix of stocks, commercial property, bonds and more.
Passive funds (including the aforementioned index funds or ETFs) are often regarded as good for beginners, as they’re simple and easy to understand. Index funds and ETFs aim to mimic the performance of a stock index, such as the FTSE 100, rather than aiming to beat it. It could be easy to think that this is a bit of a low goal. But the reality is that passive funds have historically often performed just as well as, if not better than, the alternative: actively-managed funds. With these, the fund manager attempts to “beat the market” by picking the assets themselves. They are sometimes successful in this goal, but (evidences suggests) more often they’re not.
Ready-made portfolios (including those offered by robo-advisors) can be a a good option for those new to investing. They are put together and managed by experts, so all you need to do is choose a portfolio to invest in, fund your account and sit back. A typical portfolio might include a mix of funds, shares, bonds, and possibly property, perhaps with a bit of cash thrown into lower-risk portfolios. Some platforms may specialise in specific types of investment, so their portfolios may only include one type of asset. Wombat, for example, focuses on ETFs with its portfolios (which it dubs “themes”).
Speaking of themes, this may be the approach that some platforms take towards their portfolios. Themes might include, for example, “ethically-minded”, or “tech-head”. Other platforms may let you choose between portfolios with different risk levels, from low to high.
The good part about ready-made investment portfolios is that, by investing your little amount of money in one, you get instant exposure to all of the assets within it. To get the same exposure by buying each asset individually may sometimes (though not always) require a much bigger investment pot. That said, the charges for opting for a ready-made portfolio can sometimes be higher than the DIY approach, so you’ll have to weigh up the pros and cons of DIY vs ready-made investments.
Buying individual shares lets you focus your investments into specific companies. If you have a passion for particular brand, then this could be a tempting proposition, particularly if your research and analysis suggests a bright future for the company (or companies).
Bear in mind, though, that investing in directly shares can be a higher-risk proposition than other investment options. If a company performs well, then the potential for reward can be high. But if you put all of your investment eggs into one or two baskets, and they don’t perform as well as expected (or, in the worst case, fail completely), then the risk of losses can also be high.
Plus, some shares can be expensive. So if you only have a little money to invest you may not be able to spread your risk by investing in lots of companies. In some cases, £100 may not be enough for a single share in a high profile company such as Apple or Microsoft.
If your heart is set on owning shares but you only have a little money, look for investment platforms that offer fractional shares. These are basically little slices of individual shares, and allow you to own part of a part of a company. Buying fractional shares can help those with little money to invest to diversify their holdings.
You may only be starting out with a little money to invest. But, with the right approach, a little money can turn into a decent nest egg over time. Here are 6 tactics that can help you achieve your goals faster.
A number of investment websites offer calculators to help work out potential investment returns. We’ve used HSBC’s investment calculator to calculate how much you could end up with by drip-feeding £100 a month into an investment account for 20 years. We’ve assumed intermediate market conditions and shown likely returns for low, medium and high risk investments. In good market conditions, returns may be even higher. In poor market conditions, as with any form of investing, there is a risk of loss. This risk is mitigated by keeping your money invested for longer.
There’s no such thing as “too little” money to invest. What matters far more is to think about your priorities and goals in the short and long term. If you’re planning for the long-term, and already have some cash savings to cover emergencies, then investing offers your money the chance to grow faster. Drip-feeding even small amounts into an investment account on a regular basis can really add up over time. Especially if you make the most of tax-efficient options such as a stocks and shares ISA.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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