If you’re new to investing in stocks, you might think that you need a bundle of cash to open a share dealing account. These days, this simply isn’t the case. Many DIY trading platforms allow you to buy and sell stocks for as little as £1. Here’s what you need to know.
How much does it cost to start investing in stocks?
When first investing in stocks, you may feel more comfortable depositing a small amount to start with. Many share dealing accounts take this into account and allow you to trade with only a small opening deposit.
Several investing accounts allow you to trade with low minimum deposits, including:
- Fineco – no minimum, £2.95 fee for each trade
- Hargreaves Lansdown – £1 minimum, £11.95 fee for each trade, offers discounts for frequent traders
- Interactive Investor – no minimum, £5.99 fee for each trade (under the ‘Investor’ pricing plan)
- DEGIRO – no minimum, £2.75 fee for each trade
- Freetrade – £2 minimum, no fee for each trade
While the above options provide a cheap way for you to begin investing in stocks, other popular providers, such as IG and Etoro, require a higher initial deposit.
IG has a minimum deposit requirement of £250, while Etoro requires you to stump up $200 (£147) unless you deposit by bank transfer, in which case you’ll have to deposit a minimum of $500 (£367). If you deposit in pounds, then Etoro will convert it into dollars for you for a fee.
If you are looking to invest in stocks and shares, be aware of any platform charges that apply in addition to trading fees. It’s also worth looking at reviews to compare each trading account’s pros and cons.
Another point to consider is whether a tax-efficient account like the Stocks and Shares ISA or a tax-deferred one like the Self-Invested Personal Pension (SIPP) is appropriate. These typically have higher trading fees. However, the immunity to taxes can end up being more cost-efficient in the long run.
To help you, see our list of the top-rated share dealing accounts.
What’s the right amount to invest?
A common question that stumps most new investors is deciding how much capital to put into the stock market. The answer ultimately depends on personal circumstances relating to personal financial position, financial goal, risk tolerance, and time horizon.
The golden rule of investing is to never use money you will need for at least three to five years. Why? Because it protects investors from short-term volatility spikes such as a stock market crash or correction.
There is nothing worse than being forced to sell shares in a fantastic business at a bad price to meet living expenses. And these situations often end up destroying wealth rather than creating it.
That’s why a financial advisor will often recommend keeping an emergency fund in a savings account in case of a rainy day. The size of this emergency fund again depends on the individual’s personal circumstances. However, a common ballpark balance used is six months of living expenses.
Can I invest with just £100?
With most stock brokers offering accounts with next-to-zero minimums, it’s possible to invest with as little as £100. However, an investment’s trading costs need to be considered.
For example, if you were to invest £100 in an individual stock and the trading commission is £5, your investment would need to generate a return of at least 5.3% before it would break even.
Suppose you split this capital across two investments of £50 each. In that case, you will have to pay the £5 trading fee twice, meaning both of your investments will need to generate an 11% return each before they break even.
While possible, investing with small amounts of capital may not be a wise investment decision. Instead, saving up larger sums of capital may be prudent before putting it to work in the stock market.
Here’s an example of what we think is the best way to invest £1,000.
How often should you be investing?
When used correctly, the stock market is arguably the single biggest wealth-building device available today. Therefore, we believe individuals should seek to invest new capital as frequently as possible without violating the previously highlighted rules:
- Never invest money you need for at least three to five years
- Always have an emergency fund
A common tactic is to allocate a small percentage of a monthly salary towards investments, drip-feeding money into the stock market each month.
How long should you invest for?
Investing itself is a life-long journey. And when learning how to invest in stocks, picking the right investment strategy for you is paramount for long-term success.
Deciding which approach is suitable depends on an individual’s financial goal and time horizon. For those with a lot of patience, long-term buy-and-hold investing has historically yielded the most significant return on investment.
The idea is to identify high-quality businesses capable of delivering growth and value for decades to come, continually buy shares, and hold onto them for at least five years. While the time to sell will eventually come, in the meantime, an investor can enjoy the passive income of any dividend stocks within a portfolio.
Can I lose money when investing in stocks?
Remember, as with any investment, the value of your investments can go down as well as up, and past performance is not an indication of future results. It’s best to only ever invest what you can afford to lose.
If investing in stocks is new to you, it’s worth understanding your personal risk tolerance. It’s also worth taking the time to determine how often you will buy stocks. Will you trade a few times a week? Or is it likely you’ll take a longer-term approach and buy and hold stocks?
It’s also a good idea to spend time studying the basics of investing to determine whether investing in stocks is for you.
Do I need to invest a lot to earn decent returns?
It almost goes without saying, but if you are looking to invest in stocks, then the more you invest, the more you stand to gain – or lose.
If you don’t want to invest a lump sum, you can regularly ‘drip feed’ money into your account instead. This is also known as ‘pound-cost averaging’. It’s a popular strategy among those who worry about investing a large sum only for its value to dip in a short space of time.
For example, say you deposit £6,000 into an investment account via a lump sum. If your investment portfolio plummets 10% by the end of the month, you may find this £600 loss difficult to stomach.
But if you drip feed in £50 per month instead – which is £6,000 over a year – then you’ll be less impacted should the value of your investment take a 10% hit within the first month. In fact, as you are investing £50 at regular intervals, you’ll be picking up stocks more cheaply in the months following any dips.
While drip feeding in cash isn’t a guaranteed way to boost returns, the strategy can help reduce your exposure to volatility.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.