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What’s the best way to invest small amounts of money?

Think you need a huge fortune to start investing? Think again! You can become an investor with very little money – here’s how.
What’s the best way to invest small amounts of money?
Reading time: 5 mins

The UK isn’t a nation of investors as almost two-thirds of the population aren’t currently investing. Many reasons can explain this reluctance towards investing, but the main thing keeping people outside the investment arena is the belief that they need a huge bundle of money to get started. Indeed, 30% of Brits think they don’t have enough money to dip their toe in the universe of investing. And yet, thanks to digital investment management platforms, it’s now possible to start building your financial future by investing small sums – here’s how it works.

*Wealthify ISA survey. Research conducted by Opinium Research between 9– 12 March 2018 amongst 2,010 consumers


Try robo-investing
Before the Internet, not everybody had access to wealth management. Anyone could buy a stock but they’d need to call a broker, and the minimum investment required was often high. But things have changed, and investing can now be done online. Since the emergence and proliferation of digital investment services, you no longer need hundreds of thousands in your bank account to get your money managed by experts. Online investment management platforms, whose mission is to make investing accessible to everybody, let you invest as much or as little as you like, whether it’s £1 or £100,000.


Drip feed your cash into investments
Building a decent nest egg when you can only afford to invest small sums isn’t mission impossible, it all depends on how frequently you invest your money. A good way to accumulate wealth is to drip feed your cash by investing small amounts of money regularly, without worrying about where the market is heading next. That way you’re less exposed to short-term market movements as your investment plan gets regularly fed. But that’s not the only advantage of this strategy. When financial markets are struggling, drip feeding allows you to take advantage of cheap investments that could potentially see their value go up once markets bounce back.


Invest for a number of years
In addition to drip feeding, you should try and remain invested over the long-term. Investing isn’t just about how much you’re putting in, it’s also about how long you’re willing to invest for and typically, the longer you stay on the ship, the more likely your voyage is to end in positive waters. For instance, people who invested in the FTSE 100 index for any 10-year period from 1986 to February 2019 have had an 87% chance of realising a positive return1.

This (unfortunately) doesn’t necessarily mean that your journey will be smooth – in fact, over the short-term, the value of your investments will go up and down. These fluctuations can be scary, but they are part and parcel of being an investor. If you react to every market sneeze and begin to panic sell, not only will you make your  losses real, you might also miss out on some of the good days. By remaining invested for a number of years, you’re more likely to ride out market bumps and your money will have more time to grow. So, instead of abandoning the ship every time there’s a storm, it could be more beneficial to stay invested over the long-term.

1: Bloomberg


Don’t forget to mitigate risk
Even with little money invested, it’s important to mitigate your investment risk. One way to do this is to spread your money across lots of investments and regions – but can you really do it if you only invest £1? The answer is yes! With just £1, our experts can build you a plan containing thousands of investments, including shares and bonds coming from many different places in the world, including Japan, Europe, the UK, and the US.


Invest in a Stocks and Shares ISA
Regardless of how much you can afford to invest, it’s always a good idea to pay into a Stocks and Shares ISA. Once invested in an ISA, your money is protected by an invisible wrapper designed to stop the tax office from taking a share. Put simply, with an Investment ISA, you don’t pay UK tax on any profits you make. That way you keep more of your returns! So, make sure you take advantage of your ISA allowance and give your money a chance to grow tax-efficiently.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.


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