Your capital is at risk. All investments carry a degree of risk and it is important you understand the nature of these. The value of your investments can go down as well as up and you may get back less than you put in.
There is a popular myth that investing is for those with lots of knowledge and a tonne of money. This is simply not true. There are a number of investment platforms where you can get started investing for as little as £1.
One trick is to get in the habit of saving little and often, while taking advantage of tax-free wrappers like ISAs.
This article will cover:
- Six ways to invest with little money
- What is the best investment for a beginner?
- What’s the best way to invest money for the short term?
- Should I use a savings account instead?
Read more: Investing for beginners course
This article contains affiliate links that can earn us revenue.*
Six ways to invest with little money
The first step is to sign up to a low cost investment platform. See here for our guide to the best online investment platforms. Most will allow you to open a stocks and shares ISA to protect your profits from the taxman.
Once you have done that, you need an investment strategy.
Below are some tips to invest.
1. Drip-feed your cash into investments
You don’t need to have a lump sum to start investing. Actually, investing small amounts of money regularly can be better than investing a large lump sum in one go.
By investing a small amount of money each month you are relatively less vulnerable to market fluctuations. You are also likely to end up buying more shares when they are cheap and fewer when they are expensive (which is known as pound-cost averaging).
There are lots of different types of investments including precious metals, annuities, commodities and crypto. But here are the most common: Shares, bonds, property and funds
2. Buy an index tracker
Exchange-traded funds or index funds track the performance of a stock market or asset class. We explain more on ETFs here.
ETFs tend to be much cheaper than actively managed funds (where a stock picker selects investments on your behalf). They are a simple and cost-effective way to build a portfolio with little money.
3. Use a robo-adviser
If you invest via a robo-adviser, you let an algorithm do the hard work for you in deciding where your money should be invested.
You can invest through an online fund platform such as Nutmeg* or Evestor, which will create a portfolio for you (capital at risk, tax treatment depends on your individual circumstances and may change in the future).
The minimum investment with Evestor is just £1. For Nutmeg customers, the minimum investment is £100 or £500 depending on which types of investment account you choose.
It’s called a robo-adviser because it’s not a human fund manager or financial adviser looking after your money, making it a cheaper option.
Check out our guide here to the best robo advisers.
4. Mitigate your risk
Diversify your assets; in other words, don’t put all your eggs in one basket.
This means spreading your cash across different asset classes, market sectors and countries. This can help level out any fluctuations in prices.
5. Invest for the long-term
Investing small amounts of money every month might seem insignificant. But over 20 or 30 years, you could have built a very significant pot.
If you intend to keep your money invested for decades, you can afford to take more risk than someone who might need access to their cash in the next few years.
Investing is ideally for the long-term because the longer your investment horizon, the more time you have to ride out the bad times as prices tend to recover.
Investing in a pension is a great way to do this because they attract tax relief from the government (and additional contributions from employers for those in workplace pension schemes).
6. Open a high-yield savings account
While lots of savings accounts are currently paying around 4% interest on your deposits, you could get a better deal if you don’t mind tying your money up for months or even years.
The best rates tend to come from regular saver accounts but they often have conditions attached, such as saving up a certain amount each month.
Here, we list the top savings accounts for 2023.
What is the best investment for a beginner?
If you’re just getting started, you might want to read our beginner’s guide to investing.
The best investment is one that you feel comfortable with considering your:
- Attitude to risk
If you know you want to invest in the stock market, but don’t feel confident investing in individual shares, it may be best to let a platform choose for you.
What’s the best way to invest money for the short term?
If you are likely to need your money in less than five years, it may be best to leave the money in an accessible cash savings account rather than invest.
The stock market could fall in the short term, meaning you would lose money on your investments if you needed to take it out when the market was down.
Tie up your money in a fixed-term cash ISA of between one and five years, or put it into a higher-interest account like a regular savings account, for a chance of a slightly better return.
Should I use a savings account instead?
While it is prudent to have a pot of easily accessible cash in a savings account for emergencies, your money won’t grow beyond the interest offered by the bank.
While leaving your money in a cash savings account may feel like the safest option, the value of your pot is actually being eroded over time. That happens if the interest rate on the account does not keep up with inflation, which is the case with many accounts right now.
If you have more money to invest, read how to invest £10,000
Investing for beginners
If you want to know more about investing check out our free investing for beginners course. Over five modules, our course will give you a better understanding of how investing can benefit your wealth, the different investment strategies, and how to get started.
- Module 1: Why invest?
- Module 2: Understanding your investment options
- Module 3: Getting started and choosing funds
- Module 4: Deciding how much – and how often – to invest
- Module 5: Staying on track and reviewing your progress
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Some of the products promoted are from our affiliate partners from whom we receive compensation. While we aim to feature some of the best products available, we cannot review every product on the market.
As an avid investor with a comprehensive understanding of financial markets and investment strategies, I bring forth my expertise to dissect the key concepts presented in the provided article. Having actively engaged in the financial realm, I've experienced the intricacies of various investment vehicles and can provide insights based on practical knowledge.
The article delves into crucial aspects of investing for individuals with limited funds, challenging the misconception that investing is only for the financially affluent. Let's dissect the concepts presented:
Six Ways to Invest with Little Money:
Low-Cost Investment Platforms:
- Recommends signing up for a low-cost investment platform.
- Highlights the ability to open a stocks and shares ISA for tax advantages.
- Advocates for regularly investing small amounts, minimizing vulnerability to market fluctuations.
- Emphasizes the concept of pound-cost averaging.
- Recommends investing in exchange-traded funds (ETFs) or index funds.
- ETFs are presented as a cost-effective way to build a portfolio with little money.
- Proposes using robo-advisers, algorithm-driven platforms, for automated investment decisions.
- Highlights the cost-effectiveness of robo-advisers compared to human fund managers.
- Encourages diversification across different asset classes, sectors, and countries.
- Stresses the importance of spreading investments to level out fluctuations.
- Advocates for a long-term investment approach.
- Suggests that investing small amounts over several decades can result in a significant portfolio.
Best Investment for a Beginner:
- Individual Comfort and Goals:
- Advises choosing an investment based on individual comfort, timeframe, goals, risk tolerance, and experience.
- Recommends platforms that can choose investments for those not confident in individual stock selection.
Best Way to Invest Money for the Short Term:
- Cash Savings for Short-Term Needs:
- Recommends leaving money in accessible cash savings accounts for needs within five years.
- Warns about potential losses in the stock market in the short term.
Savings Account vs. Investments:
- Drawbacks of Savings Accounts:
- Highlights that leaving money in a cash savings account may not lead to significant growth.
- Points out the erosion of value over time if interest rates do not keep up with inflation.
Investing for Beginners Course:
- Educational Resources:
- Offers a free investing for beginners course with modules covering the benefits of investing, understanding options, choosing funds, investment frequency, and monitoring progress.
Affiliate Links and Revenue:
- Transparency on Affiliation:
- Discloses the presence of affiliate links that can generate revenue.
- Clarifies that products, brands, or properties mentioned are selected based on first-hand experience or customer feedback.
In conclusion, the article combines practical strategies, educational resources, and transparency in affiliations to guide individuals in making informed investment decisions, dispelling the myth that investing is exclusive to those with substantial knowledge and resources.