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How I’d start investing with just £100 a month

We all work hard for our cash — well, most of us do! So it can often feel like a drag having to put away our hard-earned dough every month as savings.

That has been particularly true in recent years, with interest rates at historic lows, our savings accounts are proving less and less worth it when it comes to saving money.

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So you could be looking at other ways to invest your money. Many people have at least thought about buying stocks and shares, but often don’t know how to do it or think they need to have thousands to spare every month to make it worth their while.

As far as I’m concerned, that couldn’t be further from the truth.

As an investor still firmly (and luckily) in my 20s, I don’t earn an astronomical salary every month, but still look to invest a little every pay-day to keep my portfolio ticking over.

Here’s how I would start investing today with just £100 per month, whether you have no savings at 50 or you’re a 20-year-old starting off in the investing world.

Stocks and Shares ISA

Stocks and Shares ISAs are a great way for beginners and experienced investors alike to take advantage of tax breaks on any capital gains and income earned through stock market investing.

Investors can put up to £20,000 in a Stocks and Shares ISA in any given tax year, and returns won’t be subject to income or capital gains tax — a really tax-efficient way of investing in the stock market.

While traditionally Stocks and Shares ISAs have been viewed as a riskier option for those looking at the different ISA options available, the historic performance of the FTSE 100 suggests otherwise.

So, I’d start off with investing £100 every month into a Stocks and Shares ISA, as well as any lump sum savings I had. Once the ISA is open, then I’d start looking at what stocks to buy for the account.

Index tracker funds

Another piece of advice I would give to anyone starting off with regular investments would be to generate passive income rather than actively trying to beat the market.

That has been a tactic favoured by US investing legend Warren Buffett, who has bet big and won big too against actively-managed funds that aim to beat the market.

By investing in so-called index tracker funds, which track the performance of indices such as the FTSE 100 in the UK or the S&P 500 in the US, you don’t need to actively pick stocks to invest in with your £100 every month. You just passively let your returns grow.

The Footsie has grown more than 10% in the last five years, and would have provided a significantly higher return than a Cash ISA or another type of savings account. 

If you invested £100 to start, then £100 a month for the next 10 years at that rate, you’d have almost £21,000. Do it for 30 years, even at a lower rate of around 7%, and you’d have over £123,000.

If it’s good enough for Warren Buffett, it’s good enough for me. While each individual will have their own appetite for risk and preferences on where to invest their money, I’d say following the advice of a self-made billionaire wouldn’t be the worst thing to do.

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