Stock markets have rallied from their lows of March, but still trade well below their highs of earlier this year. The FTSE All-Share index, for example, is down around 20%. It’s always recovered from setbacks like this, and carried on rising in the long run. As such, if you’re looking to invest £100 per month, now could be a great time to start.
Taking the plunge is never easy. Especially when the economic outlook is murky and markets are in turmoil. So, how would I invest £100 per month starting in June?
My first step to invest £100 per month
I’d begin my investing journey by opening a Stocks and Shares ISA with a cheap online broker. This is both quick and easy to do. And a Stocks and Shares ISA is the simplest of the tax-efficient vehicles available to investors. There’s a ceiling on how much you can invest in each tax year — currently £20,000 — but there are no other limitations or strings attached. Whatever gains you make on your investments are shielded from tax.
Of course, the £20,000-a-year upper limit will easily accommodate you, if you invest £100 per month. Indeed, I’d want to try and increase my monthly investment sum over time, as my circumstances permit.
Dealing costs if I invest £100 per month
Share-dealing costs are much lower these days than they once were. However, even the lowest would take a sizeable chunk of your cash, if you’re buying a stock with £100. Saving up six months’ £100s would be more viable, but I’d say 12 months’ £100s is when buying a stock really becomes cost-effective.
However, with stock markets depressed, I’d want to get my money working for me straight away. If I had ambitions of owning individual stocks, I’d put them on hold for the time being. Instead, I’d invest £100 a month in an index tracker fund. Such funds provide broad exposure to stock markets. Furthermore, some brokers have no dealing charges on a range of trackers.
Spoilt for choice
There are lots of index trackers covering different markets, but I reckon there’s a lot to be said for keeping it simple. With this in mind, I think a FTSE All-Share tracker is a great choice.
There are over 600 companies in the All-Share index. FTSE 100 giants, such as multinationals AstraZeneca and HSBC, make up around 80% of the index. The remainder consists largely of mid-cap FTSE 250 firms, with a small percentage in small-caps. As such, there’s a blue-chip bias, but also a pretty decent diversification by industry, geography and company size.
Legal & General UK Index Class C (Accumulation) is one example of a FTSE All-Share tracker. The Accumulation bit means dividends from the underlying companies are automatically reinvested to buy you more units in the fund. This significantly compounds your returns over time. Broker Hargreaves Lansdown offers this tracker with no dealing charge. Furthermore, the fund’s already-low annual management charge of 0.1% is discounted to just 0.04%.
While my £100-a-month was steadily building up my investment in a tracker fund, I’d be learning about analysing and valuing businesses. This way, I’d be well prepared for when my financial circumstances allowed me to invest cost-effectively in individual stocks.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.