When it comes to investing in the stock market, there is a long-held perception that you have to have piles of money, Wolf of Wall Street style, right? Like we all have to be rolling in cash, or at least have the bank of mum and dad to rely on if it all falls through.
Actually, while this may be the image of stockbrokers in popular culture, it couldn’t be further from the truth. At least, that’s according to leading stockbroker The Share Centre, who has set about to challenge the notion that you need tons of money to get involved in investing.
According to their research, which looked into investing long-term for children, investing just £1.67 a day for a newborn can lead to an £18,000 windfall by their 18th birthday*. 'The figures demonstrate how, for less than the average price of a latte, this contribution can have a huge impact through the power of compounding, if drip fed over the long term,' The Share Centre said in a press release. 'And, no surprise, the longer your timeframe for investing, the easier it is to hit your investment goal.'
What they’re proving is, with their easy-to-use website and tons of resources, investing is way more accessible than you might think. In fact, you can dip your toe into investing with regular small sums – say £50 a month – and see great returns. When you really think about it, with the clothes we forget to return and the gym subscriptions we never use (guilty), £50 is much better spent on a venture that could mean you earn more money in future.
'Lots of people are cautious about investing in the stock market, and with stories of market crashes and economic uncertainty appearing in the media on a daily basis, that’s understandable,' says Lucinda Gregory, Investment Research and Guidance Manager at The Share Centre. 'However, through combining the power of compounding with a long enough timeframe and a commitment to investing, history says you should end up with more than you started with.
'Simply put, set up a small direct debit and forget about it, remembering from small acorns, giant Oak trees are grown', she added.
But how do you get started as a £50 a month investor? Well, here finance journalist Laura Whateley breaks down her top tips…
Play the long game
Think of investing in the stock market as a long game. While you don’t need to be rich to get started, you have to be able to afford to lock away savings that you don’t need to access for years. We should all have a rainy day pot in cash to access at short notice, three to six months of living expenses at least, and you might choose to save for something like a house deposit in cash if you hope to buy a property in the next couple of years. Money to invest should be in stocks and shares for three to five years at least, so you can ride the inevitable ups and downs of the market. If you invest for too short a period of time you risk losing money should you need to access your money during a fall in the market.
Invest in funds over individual shares
If you are just getting started or only investing small sums at a time, look at funds rather than selecting individual shares. If you’re invested in one company then the risks of you losing money, if that company’s value falls, are much greater than if your money is spread between different businesses, countries, or industries. Funds help you diversify your money and invest across lots of different areas, even with small sums, so as the cliché goes, you don’t have all your eggs in one basket.
We recommend The Share Centre's Multi Manager Fund range. Much like an ordinary fund, a Multi Manager Fund invests in a range of funds to give you a more diverse portfolio with a risk profile you're comfortable with. Plus, all the actual hard work is done by the managers saving you time, effort and energy!
Drip feed your money in
Trying to time the market, investing when stocks and shares are cheap, will rise in value and grow your money sounds like a good idea. In reality it is incredibly difficult even for the experts to know when is the “right” time to invest and most people get it wrong. Many suggest it is better to drip feed your money in, maybe set up a monthly direct debit for a set sum like £50. That way even if some months the timing is off and you lose out when a company’s shares fall you will gain overall because other months you’ll get a bargain, and the gains and losses will even out over the long term.
Don’t forget about investment fees
When investing in stocks and shares you need to think about fees. Unlike cash savings accounts which are free to use but offer limited return in the form of low interest rates, investing in funds will cost you in various ways. You’ll pay a “platform” fee to open an account and there will be a management charge or admin fees to have your money looked after. Meanwhile, should you choose to invest via a fund, then any money put into active funds is looked after by a fund manager, you’ll pay more for their expertise in selecting where your money should go. Passive funds track market indexes, they are cheaper because you’re not paying for any research. There’s a long-standing debate over which option is best. Investment fees vary a lot, and they can substantially erode your savings but it's worth noting that inflation also erodes your savings if you choose to do nothing with your money by leaving it sitting in a savings account. All in all, it pays to understand what you need to budget for before you invest.
If you’re interested in getting more out of your savings, checkout The Share Centre here.
*Based on compound monthly interest rate of 5% over 18 years
Capital at risk.
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