Nowadays, thanks to digital investment platforms, you can invest as much or as little as you want, whether it’s £50 or £50,000. Here are some tips that could help you maximise potential profits depending on your budget.
Ways to invest £50?
It’s often assumed that you need thousands to invest and grow wealth. But that’s not entirely true! It’s also possible to build a decent nest egg by investing small amounts of money. One of the ways to do this is by investing regularly. It can be every week, every month, or every three months, it doesn’t matter as long as you keep feeding your investment plan on a regular basis. By investing little and often, you will be giving your pot a boost as you’ll be adding money. But if you truly want to maximise your potential profits, it’s important to try and remain invested over the long-term. As a rule of thumb, the longer you stick with your investments, the better your returns should be. This is because of compounding. Let us explain. When you invest in companies, you could potentially enjoy some of their profits in the form of dividends. If you put them back into your investment plan, your dividends could potentially generate further profits and after a number of years, it could pile up and your money could grow exponentially. Here’s an example to help you see how compounding works over time.
Say, you invest £50 each month and hold onto your investments for 15 years. You would invest a total of £9,000 and you could end up with £11,692, which is a good amount of money1. But now imagine you invest your monthly £50 for an extra decade. After 25 years, you would invest a total of £15,000 and you could get around £24,1462. Notice how compounding accelerated in the last years. In the first case scenario, your profit could be £2,692, but in the second example, your gain could reach £9,146 – that’s the math magic of compounding, so try to make the most of it by investing regularly and over the long-term.
Ways to invest £500?
There are many ways to invest £500. For example, you could make contributions regularly, however if you can’t afford regular deposits of £500, that’s absolutely fine, you could also make a lower initial investment and then add small sums monthly. For instance, if you invest £500 for 20 years and add £20 a month, you could end up with about £7,8413. The decision is up to you and should depend on your own financial situation and personal circumstances.
Now if you have £500 to invest (or even just £50) and want to maximise your potential profits, why not pay into an ISA? With a Stocks and Shares ISA, you can invest and not pay UK tax on any profits you make, meaning you get to keep more of your returns. The amount of money you can put in your Stocks & Shares ISA is limited though. Each tax year, you’re able to invest up to £20,000 (subject to change) in a Stocks and Shares ISA – this is your ISA allowance and it expires every year at midnight on the 5th April. So, consider looking into it before the deadline passes.
Ways to invest £5,000?
If you haven’t used your full ISA allowance, you could put all or some of your money in a Stocks & Shares ISA and it could potentially grow in a tax-efficient way. But that’s not the only option! You could also put your money in a personal pension to try and boost your future retirement income. Just like ISAs, personal pensions, also known as SIPPs (Self-Invested Personal Pensions), are designed to stop the taxman from taking a portion of your profits. But it doesn’t stop there! With a personal pension, you’ll receive a 20% tax relief from the government – this is a little gift to compensate for the income tax you’ve already paid. Put simply, say you’re a basic rate taxpayer and earn 1,000. Typically, you’ll need to pay 20% tax on your earnings – in monetary terms here we’re talking about £200. But if you put what you’ve got left (£800) in a personal pension, you’ll get back £200 as tax relief and your pension will be worth £1,000. Now if you do the maths, it works out as a 25% uplift for each contribution you make as £200 is effectively 25% of 800.
Technically, you can put as much as you want in your personal pension, however the amount you’ll get tax relief on is limited to £40,000, or 100% of your earnings (whichever is lower) – this is your annual allowance and it includes the combined contributions made by you and the government. So, if you have an income of £50,000, the maximum you’ll get tax relief on is £40,000. If you earn £30,000, you’ll only be able to receive tax relief on the total of your earnings.
Another thing to note is that your pension money will be locked away until your 55th, so make sure you’re comfortable having your money invested over a number of years. But if you’re able to wait, you’ll be able to take 25% of your pension pot tax-free once you turn 55.
Ways to invest £50,000?
When investing £50,000, there are a lot of options available to you. Two options are investing some of it in a Stocks and Shares ISA or looking into a General Investment Account. And, if you have different goals, you could have different plans, such as ISAs, and spread your contributions across different plans to achieve your financial dreams. But remember, if you hold a Stocks and Shares ISA, your total contributions for the year shouldn’t exceed £20,000! What’s more, if you still have some pension allowance left, why not boost your retirement pot by making extra contributions into a personal pension? The choice is completely up to you!
But if you’ve got £50,000 to invest, you don’t have to put everything all at once. You could invest it gradually. For instance, if you’re planning on staying invested for 20 years, you could invest £2,500 a year, or over £200 a month. Why do this, you ask? Simply because this approach could help you smooth out market bumps. As an investor, you must be ready to accept market movements – it’s not nice, there’s no denying it, but it happens and it’s something you should learn to live with. Now if you invest your £50,000 and markets fall just after, you’ll likely see the value of your investments decrease. Don’t panic though if this happens, historically, most markets have recovered, so it could be a good idea to stay invested if you can and want to. If you leave the market, you’ll make your losses real and miss out on the better days. Let’s take the same scenario, but instead of investing your whole pot, you spread your contributions across time, meaning you’ll be buying at different prices and there’s a chance you could take advantage of the falls. By drip feeding, you could get a lot more shares with the same amount of money and your investments could potentially benefit from the dip (the lowest level reached by the market during a downturn) and the potential rebound. But remember, the way you invest should depend on your financial situation and preferences, so if drip feeding isn’t right for you, that’s fine. There other good ways to invest your money.
Whether you’ve got £50 or £50,000 to invest, using a digital investment platform, like Wealthify, can help. All you need to do to get started is choose how much you’d like to invest and the risk level that suits your needs. We’ll do the hard work for you, from picking your investments to managing your portfolio on an ongoing basis.,
Investment ISA Invest up to £20,000 a year tax-efficiently with no minimum investment, and withdraw any time without penalty. Invest now
1: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £9,374. If markets perform better, your return could be £14,584. Values correct as of 22/04/20.
2: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £18,014. If markets perform better, your return could be £33,844. Values correct as of 22/04/20.
3: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £5,831. If markets perform better, your return could be £10,578. Values correct as of 22/04/20.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.