How should I invest £100 a month?

Moneywise believes in helping you save money so you can focus on taking your first steps on the investment ladder. Over the long term, investing money will produce far greater returns than you'll get from high street savings accounts.

With that in mind, our "How should I invest..." column aims to help beginner investors of any age and any financial background plan for their family's future by offering hints and tips from the UK's leading investment professionals on how and where they should invest their cash.

In this edition, it's how to invest £100 a month.


As with any investment - no matter how big or small, whether you plan to plough your money into a fund all at once or with regular investments - the best place to invest will depend on your financial objectives, circumstances and attitude to risk. So says Patrick Connolly, a chartered financial planner at Chase de Vere.

"If you are investing over a short period, certainly less than five years, or if you want to avoid investment risk, then you should stay in cash," he says. "If you use a cash Isa, your returns will be tax free.The current cash Isa annual allowance is £5,760, meaning you can invest up to £480 each month."

Darius McDermott, managing director of Chelsea Financial Services, adds:"Investing just £100 a month into an Isa can really add up: over 40 years, assuming 5% growth a year, after charges, you could have a pot of money worth more than £150,000. So it's well worth doing."

Connolly points out investing in cash is unlikely to give you the best return – particularly over the longer term.

If you can take a longer-term view, you could look at a combination of pensions and stocks and shares Isas, he advises. "Pensions give initial tax relief but are inflexible, whereas stocks and shares Isas can also be tax efficient and they are flexible, meaning you can get hold of your money when you want. If you need flexibility you should put most focus on Isas."

Those with a medium appetite for risk and who can invest for at least five years could consider a low-cost tracker fund. "Rather than a fund manager choosing investments, a tracker fund buys all the companies in an index such as the FTSE 100," says Adam Laird, passive investment manager at Hargreaves Lansdown. "This reduces the risk that the manager might substantially underperform."

As no active management takes place, they're cheaper too. "Many are available with annual charges between 0.1% and 0.3% - over the long term the compounded difference between 0.3% and 1% over 10 years is substantial," he adds.

For investors with a more aggressive appetite for risk, or long investment timescale, McDermott says they could choose an emerging market fund "as regular monthly investments will take out some of the volatility and over the very long-term, these markets should be rewarding".

By investing regular monthly amounts you can take more risk because if your investment falls in value you simply buy at a cheaper price the following month. But McDermott sounds a note of caution: "When you first start investing £100 a month, don't over-diversify – one or two funds is more than enough to begin with."


For anyone thinking of investing in shares for the first time, Patrick Connolly says a good option is a low-cost tracker fund, such as HSBC FTSE All Share Index, which tracks the performance of the UK stockmarket.

Alternatively, he suggests they consider UK funds with good quality managers such as Investec UK Special Situations or BlackRock UK Special Situations. Or they could look at diversified global funds such as Aberdeen World Equity or M&G Global Dividend.

For more diversified funds, he recommends Cazenove Multi Manager Diversity, AXA Framlington Managed Balanced and Investec Cautious Managed.

For medium-risk investors, investing for at least five years,Adam Laird suggests the Vanguard LifeStrategy 80% Equity mix fund. It is a passively managed, mixed asset fund, with a fixed 80% in equities and bonds. "This fund is for investors with a long time horizon, but with increasing bond exposure for the more risk averse," he says.

For anyone with a high appetite for risk or long investment horizon, Darius McDermott likes the M&G Global Emerging Markets fund. "The manager has a consistent track record and is a value investor, and value styles rather than growth tend to outperform in emerging markets."