Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money. If you have a question or need help, you can chat to them here.
By Thando, Skilled Finances
Hi, I’m Thando from Skilled Finances where we talk all things money to help you reach your financial goals. My wife Lindie and I paid off our debts and bought our house with a combined salary of £40k, we believe it’s more about having the right mindset and less about how much you have. You can also follow us on Instagram.
Investing is simply when you put your money into something with the aim of getting a greater financial return. You don’t need a lot of money to begin your investing journey.
Here are five ways you can start investing with small amounts.
Investing and saving are two sides of the same coin.
Saving accounts give you interest as a return on the money you put in.
This is a great place to start as you get into the habit of putting money away for future use.
Accounts called Regular Savings Accounts will give you a higher interest rate compared to a normal savings for putting money in the account every month.
There are some that give you up to 3% interest on top of what you put in.
A share is literally a share of ownership in a company. Companies sell shares to raise money from you as an investor and in exchange you own a piece of the company.
When buying shares you’re investing in a company that you believe will perform well over time, resulting in the value of your shares increasing or you receiving a slice of the profits.
First you analyse a company to assess whether it’s a worthwhile investment, such as analysing its past performance, financial position, and the leadership strategy.
It’s important to note that past performance does not mean it will succeed in the future. Do you remember Vine? It could’ve easily been the present day TikTok.
So had you bought shares in a company like Vine you would’ve lost most, if not all, of your money. The decline of a company = value of your shares also decline (and the opposite is true too).
Investing in shares is known as active investing as it’s hands-on.
You can buy shares from places like Trading 212 or Freetrade with as little as £2.
An index fund is a collection of many shares in one portfolio.
If you think of shares as one chocolate bar such as Snickers, funds are like a box of chocolates, like Celebrations.
Take the FTSE 100 Index Fund.
This index fund has the top 100 companies in the UK in its portfolio, which include BP, HSBC, Legal & General, Unilever, and Vodafone.
When you invest in that fund your money will be split across those 100 companies.
If one of those companies went bust like Vine, you’d still have 99 companies in your portfolio, so you wouldn’t lose all your money.
With index funds you don’t need to analyse companies but you will have to do some research on which fund you’d like to invest in.
Investing in index funds is a semi passive method of investing. You choose the fund then you simply let your investments grow from the performance of all those companies.
Analysing companies or choosing which fund to invest in can be scary and a steep learning curve, an alternative are robo-advisors.
A robo-advisor is an online investment software that builds and manages your investments for you. Generally, robo-advisors will invest in Index Funds.
When you sign up you’ll be asked questions to determine which investment portfolio suits you.
This is a completely hands-off passive approach to investing.
The only choice you have to make is how much you want to invest, everything else is done for you.
UK Robo-Advisors include Wealthsimple, Moneybox, Nutmeg, and Wealthify, where you can also start with as little as £1.
If you have a job or will get a job in the future, you can invest through a workplace pension.
Workplace pensions are generally invested in funds which are chosen for you by the pension provider.
A portion of your salary will be taken to go into this pot, plus your employer puts in additional funds into your pension at no extra cost to you.
If you are self-employed or freelancing you can set up your own pension.
Same as robo-advisors, pensions are a passive hands-off approach to investing where you simply put money in every month.
Money for Life work in partnership with the Money Advice Service, an independent organisation set up by government. Money AdviceService provides free, unbiased money guidance across the UK to help people make the most of their money. If you have a question or need help, you can chat to them here.
