FOOL SCHOOL
How Much Do You Need To Invest In Shares?

February 1, 2002

Not that many years ago the answer to this question would have been several or even tens of thousands of pounds. Thankfully that is no longer the case. The new breed of online brokers has resulted in the cost of buying shares coming down dramatically in the last five years. It is likely to fall further still in the next five.

It is hard to come up with a definitive minimum amount but if you have less than £1,000 then we suggest that the most practical way for you to invest in the stock market is to buy an index tracker, rather than individual shares. It is also an excellent way to drip small amounts of money into the market on a monthly basis. Most trackers have set up savings schemes so that you can put in as little as £25 a month, or even less if you wish, whilst paying no commission charges.

In any event buying a tracker is an excellent way to build a foundation for your share portfolio. It gives it a solid base and gives you a little time to do some preparation and get used to the way the stock market works before buying your first share.

Beware of charges!

As you can see from our broker centre you can now buy shares for as little as £10. One of the investor's greatest enemies is charges. You need to keep the amount you pay as low as possible, otherwise it can make a sizeable dent in your overall returns.

If you buy £500 of shares then £10 represents a charge of 2%. If you buy just £200 then £10 represents a charge of 5%. Remember that the historical average market return has only been 12% a year. Take away 5% right at the start and the whole exercise becomes significantly less rewarding! Don't forget you will also need to pay charges when you sell as well.

Therefore we'd suggest that £500 is probably the smallest amount you will want to put in an individual share. Or to put it another way, think long and hard if you are paying more than 2% in broker's charges when you buy a share. It is probably worth saving up a little bit more to bring down the amount of charges you are paying in percentage terms.

You will need to buy more than one share and we'll look at how many different shares you should buy in a later article. Bear in mind that you don't need to buy them all at once and you may find it easier to buy two lots of £500 to start with and continue to build up your portfolio over the next two or three years. Do what you feel comfortable with. Don't give in to the pressure of feeling you need to rush into buying all your shares in one frenzied panic.

Where Next?
Get A Broker | Get A Tracker