How much money do I need to start investing?
You don't need to have plenty of disposable income to start investing; those who invest regularly can commit as little as £50 a month.
Regardless of how much you may have - those who invest little amounts over the long term on a regular basis, are likely to see their money work much harder for them than those who let their money sit in a low interest paying savings account.
Here we run through how much money you actually need to become a DIY investor.
Regular investment thresholds are lower
If you choose to invest regularly, say on a monthly basis, the minimum amount required tends to be lower than the amount required if you want to invest a lump sum.
The monthly amount can be as little as £20 on Interactive Investor, £25 on rplan and Hargreaves Lansdown and £50 on both Charles Stanley and Fidelity if you invest regularly in an Isa.
Lump sum investing
The minimum lump sum investment into a fund varies. For example it can be as little as £50 online broker rplan.co.uk, but rises to £100 on Hargreaves Lansdown and £1,000 with Fidelity.
However, it is important to remember that platforms charge various fees - including exit fees in some cases; as well as platform fees and the ongoing fund manager charge.
Therefore it is important to consider whether the potential gains on a small sum outweigh the potential charges it entails.
Investments to choose from
There are various investment 'products' you can choose from. You can, for instance, decide to invest in 'actively' managed funds. These funds are run by fund managers, and they tend to focus on a region and a specific type of asset (equities or bonds, for instance).
There is often no charge for trading funds because they are sold in 'units' rather than shares. But you will still incur a broker platform fee and also a fee you pay to the manager the ('ongoing fund manager charge').
For an equity fund, for instance, a typical manager charge is 0.9% of the amount you invest per year.
- Read our article Finding your way around funds.
Alternatively, you could opt for investment trusts, which are similar to funds but have a different structure in that they are 'closed ended' and they are listed on the stock exchange, which means they are sold in shares.
There are also exchange traded funds (ETFs), which are 'passive' funds that run on an algorithm and track a certain index, rather than being 'actively' run by a human manager.
These funds tend to have much lower fees. The cheapest cost less than 0.1%, but some command a fee of 1%, so it is important to look at the price tag before buying.
Various studies over the years have concluded that passive funds tend to beat active funds over various timeframes across different equity markets.
In contrast to funds, both ETFs and investment trusts incur additional trading charges, because they are sold by shares. These costs range from £1.50 to £12.
Every online broker platform has a different fee structure, and some are more transparent than others. Some fee structures are better suited to larger sums whereas others work better for smaller sums.
Another type of investment you might want to consider is peer-to-peer (P2P) lending. Online P2P lenders match individual borrowers with savers who are willing to lock away their money for a certain amount of time to get a return.
Some P2P lenders offer a low minimum investment threshold: £10 is the minimum investment on both P2P lenders RateSetter and Zopa.
However, Zopa recommends a minimum investment of £1,000 to its customers and you get a better return on your money if it's locked in for a certain time period.
Robo-advisers: model protfolios
The portfolios on these platforms tend to mainly consist of ETFs as well as some actively managed funds.
The minimum investment on Nutmeg is £500 and they charge 0.95% on amount of up to £25,000. Wealthify has a lower investment threshold at £250 and it charges an annual fee of 0.7%.
This article was originally written for our sister magazine, Money Observer.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.