Investing can seem daunting and expensive if you’re not familiar with it. It’s a huge industry with a vast range of options and there’s still a perception that investing is for those with deep pockets.
There used to be some truth in the idea that investing was for the better-off – but times have changed. Investing has become increasingly democratised, due largely to the technological advances that have made it accessible to a much wider audience. Investors are now just a click or two away from the kind of data and information previously available only to professional investors, while platforms and digital wealth services have made it much easier to build and manage your own portfolio.
Those developments have also opened the door to savers and investors with modest amounts to put away but who don’t want to leave their money in low interest cash accounts. So, if you’ve got £25 to invest each month, what do you need to know?
Make sure you can afford it
You can minimise risk when you’re investing your money, but you can’t take it out entirely. This means it’s important to ensure that any high-interest debts have been cleared before you invest, because the payments could more than offset any growth on your investments.
Also try to maintain an emergency cash fund that would cover your main expenses in the event of losing your main income. Your emergency fund should be equivalent to between three- and six-months’ worth of outgoings and should be held in an easy-access account – separate from your current account. Investing should be for at least five years, so don’t invest money that you might need to access in the shorter term.
Little-and-often goes a long way
You might think that £25 a month is too little to generate any real investment growth – but you’d be emphatically wrong. This is due to the magic of compounding – the snowball effect that occurs when the growth you get from investing then goes onto generate its own growth. This effect can really turbocharge your investments over time, turning your £25 a month into a substantial sum without too much effort.
Regular investing also allows you to take advantage of pound-cost averaging. This is where setting money aside each month allows you to buy units of funds at different prices as markets move up and down. The result is that your money buys more of an investment when prices are low and you get even more of a lift when prices rise again.
Pick the right platform
Investment platforms have played a huge role in making investing easier for ordinary punters. Many platforms allow you to invest from £20 or £25 a month, and a handful require just £1 to get started. There are now dozens of platforms to choose from, ranging from digital wealth services that use algorithms to help build a suitable portfolio for you, to execution-only services for investors that want to do it themselves.
In between these two options is a competitive market of platforms that provide a wide range of tools that help investors research, build and manage their investments themselves. It’s worth taking the time to find the right one for you. Check out more on how to get the best from your investment platform, and use our free comparison tool to find the best one for you.
Don’t pay more tax than you need to
However much you’re investing, it’s worth taking advantage of tax-efficient wrappers such as ISAs and pensions. You can invest up to £20,000 a year into a stocks and shares ISA and not pay income tax or capital gains tax on the profits you make. Most platforms offer ISA and self-invested personal pension (Sipp) accounts, while some also provide access to Lifetime ISAs and Junior ISAs. We have more general tips on investing in stocks and shares and the investment rules you need to know.
Keep your costs down
Costs and charges can eat away at your investment returns over time, so it’s important to avoid paying more than you need to. Some charge a flat fee, while others take a percentage of the value of your holdings, typically around 0.15% to 0.45%. The percentage fee may reduce depending on the size of your investment, and some will be capped at a set level (i.e. £45). Here’s all you need to know about platform fees.
The cheapest platform won’t necessarily be the best for you. For instance, the lowest cost options might not offer the range of funds or resources that you want. At the same time, you don’t want to pay extra for a bells-and-whistles platform offering services you don’t need. If you’re a beginner, we have more on the best platforms for those just starting out.
Use our free and easy-to-use comparison tools to compare platforms. It allows you to input the type of investments and wrappers you hold or want and help you work out which might give you the best deal, depending on your requirements.
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