Investing might seem like something reserved for the wealthy or those with a lot of disposable income, but the truth is, you don’t need a large sum of money to get started.
Why Start Investing with £100?
Starting with a small amount like £100 is a great way to dip your toes into the world of investing without taking on too much risk. It allows you to learn the basics, understand how the markets work, and develop good investment habits. Thanks to the power of compound interest, even a small investment can grow significantly over time.
By investing early, you can take advantage of the time you have before reaching your financial goals, whether that’s saving for a home, building an emergency fund, or planning for retirement. The key is to get started, even if it’s with a modest amount.
Step 1: Set Clear Financial Goals
Before you start investing, it’s essential to have clear financial goals. Are you saving for a specific purpose, such as a holiday, a down payment on a house, or retirement? Understanding your goals will help you determine the right investment strategy and time horizon.
Short-Term Goals (1-3 years): If your goal is short term, you might want to invest in low risk assets like bonds or a savings account with higher interest rates.
Long-Term Goals (5+ years): For long term goals, such as retirement, you can afford to take on more risk by investing in stocks, ETFs, or mutual funds, which typically offer higher returns over time.
Step 2: Choose the Right Investment Platform
With just £100 to start, choosing the right investment platform is crucial. Look for platforms that cater to small investors, offer low fees, and provide easy access to a range of investment options.
Robo Advisors: Robo advisors are a great option for beginners. These platforms use algorithms to create and manage a diversified investment portfolio based on your risk tolerance and goals. You can start with as little as £1 on some platforms. Popular robo advisors in the UK include Nutmeg, Wealthify, and Moneybox.
Online Brokers: If you prefer more control over your investments, consider an online broker. These platforms allow you to buy and sell stocks, ETFs, and other assets directly. Some brokers, like Freetrade and Trading 212, offer commission free trades, making them ideal for small investments.
Micro-Investing Apps: Micro investing apps like Moneybox round up your everyday purchases to the nearest pound and invest the spare change. This is a simple way to start investing with small amounts, and you can also make one-off deposits to boost your investment.
Step 3: Diversify Your Investments
Diversification is a key principle of investing. It involves spreading your money across different assets to reduce risk. With £100, it might seem challenging to diversify, but there are several ways to achieve it.
Exchange-Traded Funds (ETFs): ETFs are one of the best ways to diversify with a small amount of money. An ETF is a fund that holds a basket of different assets, such as stocks or bonds, and trades on an exchange like a stock. By investing in an ETF, you gain exposure to a wide range of companies or sectors with just a single investment. The FTSE 100 ETF gives you exposure to the 100 largest companies listed on the London Stock Exchange.
Index Funds: Similar to ETFs, index funds are mutual funds that track a specific market index, such as the FTSE 100 or the S&P 500. These funds are passively managed, meaning they simply replicate the performance of the index. Index funds often have lower fees than actively managed funds, making them a cost effective way to diversify.
Fractional Shares: Some online brokers offer fractional shares, allowing you to buy a portion of a stock rather than a full share. This is particularly useful if you want to invest in high priced stocks like Amazon or Tesla but don’t have enough money to buy a whole share. Fractional shares let you diversify across multiple companies, even with a small investment.
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Step 4: Consider Risk and Time Horizon
Every investment comes with some level of risk, and it’s important to consider how much risk you’re willing to take. Your risk tolerance will depend on your financial goals, time horizon, and personal comfort level.
Low Risk Options: If you’re risk-averse or have a short time horizon, consider low risk investments like bonds or high yield savings accounts. While the returns may be lower, these options provide more stability and less volatility.
Higher-Risk Options: For those with a longer time horizon and a higher risk tolerance, stocks, ETFs, and mutual funds offer the potential for greater returns. Keep in mind that these investments can be more volatile, and there’s a risk of losing money, especially in the short term.
Risk-Adjusted Returns: Always think about risk adjusted returns, which measure how much return you’re getting for the level of risk you’re taking. A diversified portfolio typically offers a better risk adjusted return than investing in a single stock or asset class.
Step 5: Start Investing Regularly
Once you’ve made your initial investment, the next step is to keep the momentum going. Regular investing, also known as pound cost averaging, is a strategy where you invest a fixed amount regularly, regardless of market conditions. This approach has several benefits:
Reduces the Impact of Volatility: By investing regularly, you buy more shares when prices are low and fewer shares when prices are high, which can reduce the impact of market volatility on your portfolio.
Builds Discipline: Regular investing helps you develop a disciplined approach to saving and investing, which is crucial for long term success.
Takes Advantage of Compound Interest: Regular contributions, even small ones, benefit from compound interest over time. The earlier you start and the more consistently you invest, the more your money will grow.
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Step 6: Keep an Eye on Fees
Even with a small investment, fees can have a big impact on your returns. It’s important to choose investment platforms and products with low fees to maximise your gains.
Platform Fees: Many platforms charge an annual management fee, which is usually a percentage of your portfolio’s value. Look for platforms with fees below 1% per year.
Trading Fees: If you’re using an online broker, be mindful of trading fees. Some brokers charge per trade, which can eat into your returns if you’re making frequent transactions. Opt for brokers that offer commission free trades, especially for small investments.
Fund Fees: If you’re investing in ETFs or mutual funds, pay attention to the expense ratio, which is the annual fee charged by the fund. Index funds and ETFs typically have lower expense ratios than actively managed funds.
Step 7: Monitor and Adjust Your Portfolio
Investing isn’t a “set it and forget it” activity. Regularly monitoring your portfolio ensures that your investments are still aligned with your goals and risk tolerance.
Review Your Goals: As your financial situation or goals change, you may need to adjust your investment strategy. For example, if you initially started investing for short term goals but now have a longer time horizon, you might want to shift towards higher risk, higher reward investments.
Rebalance Your Portfolio: Over time, some investments may perform better than others, causing your portfolio to become unbalanced. Rebalancing involves selling some of the over performing assets and buying more of the under performing ones to maintain your desired asset allocation.
Starting with just £100 might seem small, but it’s a powerful step towards building your financial future. By setting clear goals, choosing the right platform, diversifying your investments, and staying disciplined, you can grow your money over time. Remember, the key to successful investing is consistency, patience, and making informed decisions.
Content on IceburgWealth.com is for informational purposes only and not intended as investment advice. While we strive to provide accurate and up-to-date information, Iceburg Wealth is not responsible for any errors or omissions, or for outcomes resulting from the use of this information. Readers should seek professional advice before making any financial decisions.