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Six ways to invest with little money

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 a £1.

The trick is to get in the habit of saving little and often, while taking advantage of tax-free wrappers like ISAs.

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If you interested in learning how to invest, check out our free Investing for beginners course.

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You don’t need to be rich to start investing. You can set up some accounts with just £1

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 is better than investing a large lump sum in one go.

By investing a small amount of money each month you are less vulnerable to market fluctuations. You also inevitably end up buying more shares when they are cheap and fewer when they are expensive (which is known as pound-cost averaging).

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.

You can put your money in an exchange-traded fund via an investment platform such as AJ Bell Youinvest, Hargreaves Lansdown* or Interactive Investor.

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.

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 for the long-term because the longer your investment horizon, the more time you have to ride out the bad times as prices will recover.

Investing in a pension is a great way to do this because they attract tax relief from the government (and free cash from employers for those in workplace pension schemes).

If you’re looking for a ready-made personal, we have given Nutmeg* and Fidelity* five stars in our round-up of the top pension providers.

6. Open a high-yield savings account

While lots of savings accounts are currently paying next to next to nothing, 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 2022.

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:

  • Timeframe
  • Goals
  • Attitude to risk
  • Experience

Only choose what you understand. 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’s best to leave the money in cash rather than invest.

The stock market could fall in the short term, meaning you would lose money on your investments if you tried to take it out when the market was down.

But be warned, interest rates are historically low at the moment so you won’t get a great return.

Tie up your money in a fixed-term cash ISA of between one and five years, or put it into a high-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.

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