How to invest if you are skint… and turn £1 a day into £15,000: The key steps and how to keep charges low
If you are hard up, taking a risk on shares can feel like the last thing to do. But history shows your cash typically grows far faster if you invest it than if you leave it in a savings account.
If you invested £100 a month for 20 years, with a 7 per cent annual return you could build a £52,000 pot. Just £1 a day over 20 years could build as much as £15,000.
And you can start with as little as £1 in a stocks and shares Isa.
Clare Stinton at investment platform Hargreaves Lansdown says: ‘Too many people consider investing an activity for the rich. In reality it’s an effective way to get richer. Saving gets you started, but investing can take you further.’
Inspiring as it sounds, it may be hard if you’ve got little left at the end of the month. The key is to start small, keep charges low and be prepared to leave your money to grow.
Clare Stinton at investment platform Hargreaves Lansdown says it’s always sensible to put some cash aside as a buffer for unexpected moments
Build a buffer zone
You should never invest money that you’ll soon need, so before you start buying shares make sure you’ve built an emergency fund.
Ms Stinton says: ‘It’s always sensible to put some cash aside as a buffer for unexpected moments, whether to replace a broken boiler or keep the roof over your head if you have a sudden change in income, and it’ll make dipping your toe into the stock market less daunting.’
Your rainy-day fund should be easily accessible, say in an instant access account or cash Isa separate from your current account. Aim to have three to six months’ expenses set aside.
Set up a monthly direct debit to this account on payday and it should soon add up. Once this is done, you’ll be able to start investing your spare cash.
Start really small
New ‘micro-investing’ apps make it easier to invest even tiny amounts. Investment app Trading 212 allows you to invest from just £1, as do challenger banks Monzo and Zopa.
Moneybox takes that further by allowing you to invest your spare change from transactions. While micro-investing won’t make you rich, it does help you to get started painlessly and put in more as you see your investments pay off.
Investment apps on your smartphone mean it is now even easier to invest money made or saved. For example, you could pay any money from selling secondhand clothing on Vinted straight into your investment account, or you could transfer the cost of a cup of coffee every time you have one at home instead.
This will help your investment pot grow without affecting your ability to pay the bills.
Use direct debits
You can use a direct debit to automatically pay money into your investment account each month – many people do this on payday. This means you prioritise investing before spending, and aren’t putting all your money in at once.
What to invest in
When you have little money, buying individual shares is risky. So choose a low-cost fund that spreads your investment across countries, sectors and assets.
Banks such as Monzo and Zopa, as well as trading groups such as Trading212, allow you to invest from just £1
Consider investing in so-called exchange-traded funds (ETFs) which are a cheap way of tracking an entire stock market. Many investment companies allow you to put as little as £1 into these.
Cheapest for the global stock market is the Amundi Prime All Country World, with an annual charge of just 0.07 per cent. It is diversified across thousands of companies. If you prefer US firms, Vanguard’s S&P 500 tracker, known as VUSA, has a similar charge. For a UK fund, Xtrackers has an ETF charging 0.5 per cent a year that tracks the top 100 British firms.
If you want a fund that includes corporate bonds, not just shares, try Vanguard’s LifeStrategy funds (0.2 per cent a year charge). For those who like to avoid volatility, a higher percentage of bonds is usually recommended.
Pick a cheap platform
As well as fund fees, you need to consider investment platform fees. Cheap options for beginners include Trading 212, which offers investing in shares, ETFs and investment trusts, with no dealing or account fees.
InvestEngine only offers ETFs and is mainly fee-free but you need to start with £100.
In many cases you can only buy ETFs on fee-free platforms. If you want to put your money into funds such as LifeStrategy, apps such as AJ Bell’s Dodl have a 0.15 per cent platform fee and no trading fees.
> Read our full round-up of the best and cheapest investment platforms
Save on tax
To ensure you don’t pay tax on dividends or profits on your investments as your pot grows, put them in a tax-efficient wrapper such as an Isa.
If you use a pension or Lifetime Isa (an account designed for first-time buyers and those saving for retirement), you’ll do even better from investing as the government will add in extra money to help your pot grow. In the case of a pension, you’ll get tax relief at your marginal rate and a Lifetime Isa comes with a 25 per cent government bonus on up to £4,000 a year. There are restrictions on this though – you’ll only be able to use the money after the age of 60 or to pay for a first home worth under £450,000.
Leave it be
Investing is for the long term. Even if you are on a budget, you shouldn’t plan to withdraw your money for at least five years. That gives it time to grow, to smooth out any ups and downs in the stock market and to ensure you’ve built a meaningful pot.
Seeing your portfolio grow over time might spur you on to invest a little more each month as your finances are on a firmer footing, making those first small investments you made when you were struggling to put money away feel all the more worthwhile.
