It’s a common misconception that you have to be well-off to be an investor but is just not true. No matter how much up you’ve saved up, even if it’s as little as £500, there are many ways you can kick-start your investing career.
1.The first step any investor just starting out should take is to accumulate knowledge. Spend time reading and understanding the best way to invest based on your own unique circumstances. Take a portion of your £500 starting capital and use it to buy books on investing and take time to read as much free material online as possible. Courses on accounting and investment management would also be a great investment. At this early stage, it’s all about building a knowledge base to ensure you make sensible investment decisions with a long-term outlook.
2. Before you dive into the stock market, you should always have some cash savings. Investing requires a long-term outlook, and you need to be prepared to lock you cash away for a number of years. Without a cash cushion, you could be forced to sell your investments at the worst possible time, which could hurt long-term returns and even cost you money. If you shop around, you can find some cash savings accounts that offer interest rates of 5% per annum if you deposit a certain amount every month and promise not to withdraw the cash for 12 months. This could be a great way to invest your cash while you research other ways of investing.
3. If you’re ready to start investing in the market, a tracker fund is probably the best way to go. A low-cost FTSE 100 or FTSE 250 tracker is a great beginner’s investment. However, it’s important that you hunt for the best deal to minimise broker fees. Most brokers will charge an account management fee alongside trading commissions for accounts with a balance under a certain amount. These fees will eat away at returns over time. But there are ways around this. For example, TD Direct Investments offers a regular investment ISA, which doesn’t charge a management fee if you commit to investing a minimum of £25 every month, trading commissions are also reduced to £1.50 per monthly trade. If you don’t invest on a regular basis it’s £12.50 to trade, and account management fees are £30 every six months.
4. The more entrepreneurial investors could use the £500 to start a business. Of course, you’re not going to start the next Coca-Cola or Apple overnight but it is possible to generate impressive returns by using very simple business models. Buying bottled water in bulk for £1 a bottle and then selling for £1.50 a bottle on a warm day would net you a 50% return for every £100 invested.
5. Rule number five is probably the most important. If you only have £500 to start investing, be sensible and remember Warren Buffett’s rule one of investing, “don’t lose money.” There are many get-rich schemes out there, but novice investors should avoid all of them. It may be tempting to use sophisticated financial products such as CFDs, spread betting and FX trading to help accelerate your returns, but more than three-quarters of the investors that try these products end up losing money. It’s better just to stay away entirely.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.