There’s a general feeling that you need to be wealthy to invest in stocks and shares, but that’s nonsense. It’s still worth investing even if you can only afford relatively small sums. Arguably more so, because this is your starting point to building long-term wealth.
Little and often
The absolute minimum you need is £25 a month, which is the cut-off point for many regular investment plans. You should aim for more than that, though.
If you invest £50 a month, you’re setting aside £600 a year for your future. That still isn’t enough, but it’s far better than nothing. If you invest for 30 years and your money grows at an average rate of 5% a year after charges, you’ll have £41,856. After 40 years, your money will have grown to £76,104.
The long game
I am using such lengthy periods because investing in stocks and shares is a long-term game. That gives maximum time for compounded growth and dividend interest to work their magic. Also, it allows you to overcome short-term volatility. If you can double your monthly payment to £100 you would have £152,208 after 40 years, and that starts to look like serious money.
Avoid paying excessive fund charges, as these will eat into your returns. You should also look to invest tax-free through your Stocks and Shares ISA allowance, to keep the taxman away from your returns.
Strong platform
Start by signing up to an online investment platform, which will allow you to invest in a choice of thousands of funds at minimum cost, starting with relatively small sums.
Hargreaves Lansdown is the UK’s most popular (although not necessarily the cheapest) and lets you invest regular monthly sums starting from £25, or lump sums of £100. Interactive Investor is also popular and slightly cheaper and, again, you can start from £25 a month, as you can with AJ Bell. Fidelity increases the minimum monthly investment to £50 (although you can split your £50 between two funds, paying £25 into each).
Some platforms set lower limits, such as Scottish Friendly (£10) and Wealthify (£1), but they only offer a limited choice of funds. However, online stockbroker The Share Centre gives you the full range from just £10 a month, Halifax from £20.
Choose your fund
When investing smaller monthly amounts, such as £25 or £50, you may have to put the whole lot into just one fund. You could invest in the fortunes of the benchmark FTSE 100 index by purchasing a low-cost exchange traded fund (ETF) tracker, such as iShares FTSE 100, or widen your stock pick with the SPDR FTSE UK All-Share UCITS ETF. Or start with buying a couple of investment trusts. While we’re at it, here’s a couple more to consider.
Don’t invest all your spare cash. You need a rainy day fund for emergencies and should pay down expensive short-term debt first. There is no point generating 5% or 6% a year from the stock market if you’re paying 20% on uncleared credit card debt.
Just remember, £50 is only the beginning. You should increase your monthly payments as soon as you can. Start small, but think big.
