You don’t need loads of cash to invest
Lots of people think you need a ton of money before you can invest. But it’s simply not true. In fact, one of the best ways to invest is with regular, small sums and it’s a really good way to get started.
So how do you do it?
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Here at Be Clever With Your Cash, we’re not regulated to give you financial advice. We aim to give you the facts about a provider or investment but it’s up to you to decide if it’s suitable for you. If you’re looking for more personalised guidance, find a financial adviser who can give you specific advice. Remember that your capital is at risk when investing — don’t invest more than you are prepared to lose.
First, get your finances in order
While you don’t need lots of money to invest, there’s a few things you should have in place first.
We’ve covered this in more detail in our investing guide for beginners, but generally speaking, it means making sure you’ve cleared expensive debts like credit cards, have three to six months’ cash savings and insurance in place to cover yourself and your family if you die or are too ill to work.
Consider funds
A good way to invest small sums and stay diversified is by investing in funds. Some funds can offer a relatively low-cost way of investing. A fund is a collection of investments, and your money is pooled together with other people’s to invest in different assets and companies.
The fund can invest in lots of different companies at the same time. Because your money is combined with other investors’, it usually means you can get exposure to many more companies than you would if you bought shares directly. Buying a single share in a high-value company like Microsoft or Apple is often out of reach for a retail investor.
So you can get a good spread of investments with whatever money you have to invest.
Some funds cover a massive range of regions, sectors and organisations, including the tech giants and small startups, developed and emerging markets and different industries. While others are focussed on themes such as clean energy or specific countries or sectors.
Diversifying your investments – or not keeping all your eggs in one basket – can help reduce the risk. The idea is that if one market falls, others will be successful and bring your investments back up.
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You can diversify by buying one fund that covers everything – often called a global fund or mixed asset fund. Or you can buy a few funds that cover different areas and themes.
If you’ve got your finances in order and you want to start investing with small sums, it’s worth having a look at index funds (also known as tracker funds) and Exchange Traded Funds, or ETFs. These can keep your costs low and provide access to most types of investments.
With these ‘passive’ funds, you’ll find they usually invest in a group of companies from the same sector, like the tech industry, or follow the performance of a particular stock market index.
For example, a FTSE 100 tracker fund will aim to replicate the performance of the 100 biggest companies listed on the London Stock Exchange. Say the index goes up by 1%, so will your investments. Similarly if it falls, so will your money.
Explore online investment platforms
Online investment platforms can also provide a low-cost way into investing. Rather than paying an adviser or stock broker, consider starting with a digital investment platform, like Dodl, Trading 212 or Invest Engine. These can often be a cheaper and easier place to start for beginners.
As well as being cost-effective, these platforms are also straightforward to use. They let you track your investments and everything’s all in one place.
However, some platforms may offer a limited service and cheapest isn’t always best.
If you’re not sure where to start, check out our investment best buy tables.
In the past, some providers would set a minimum investment level – which were often quite high. But now, there are plenty of platforms that let you get started with pretty much any sum.
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Try ‘pound cost averaging’
Pound cost averaging is the oh so catchy investment term that essentially means you regularly invest a little bit at a time instead of with a large lump sum.
Investors like this approach as you can invest gradually and it can smooth out the investing journey overall. The idea is that if you invest the same amount, say £100, on the same day every month, regardless of rises and falls in the market, you’re reducing the risk that comes with buying at the right time.
If you want the technical term, this approach is known as ‘pound cost averaging’.
You can make it even easier for yourself by setting up a direct debit from your bank account to your investment account each month, so you don’t even have to think about it. This will also get rid of any temptation to try and read the market. Some apps, like Moneybox, make it even easier by rounding up your spend and investing the difference automatically.
Now, there’s an argument that investing with a large lump sum gives you more time in the market and therefore can lead to bigger returns, but we’re not going to go into that for this article; the purpose here is to get you started investing with small amounts of money.
Try a robo-advisor
Designed for small amounts, robo advisors are low cost and offer ready made portfolios based on your attitude towards risk. They essentially automate your savings and do all of the above for you. For more information, see our guide to robo advisors.
