Investing can seem like a daunting process at first. However, it doesn’t need to be. Today, I’m going to explain how anyone can invest a small amount of money in UK shares with just a few clicks and almost no experience.
A strategy for a small lump sum
If you have a small lump sum to invest, such as £50 or £100, the best approach could be to buy a fund.
Because most online stockbrokers charge a commission of around £10 on each trade, buying individual UK shares may be a bit too far. You might end up giving most of your money to the broker in commission.
Many online stockbrokers don’t charge to invest in funds. What’s more, most funds nowadays don’t charge investors entry or exit fees. This means you can keep more of your money while investing in the stock market.
With a lump sum of £50, the best investment to buy could be a simple market tracker fund. This is the easiest, cheapest, and fastest way to buy a diversified basket of stocks at the click of a button. Tracking an index such as the FTSE 250, or FTSE All-Share, would provide exposure to some of the UK’s fastest-growing and biggest companies instantaneously.
Buying UK shares for the first time
If you’ve a large lump sum to invest, such as £500, buying individual stocks could be a better alternative to buying index funds. I think the best strategy here could be to target high-quality blue-chip stocks—companies such as GlaxoSmithKline and Unilever, which are both international giants in their respective sectors.
While the allure of small-cap stocks might be tempting, I think it may be best for beginners to stay away from these companies. Investors can make a lot of money investing in small-caps, but they can also lose a lot of money.
If you only have £500 to invest, I reckon it’s better to stick with blue-chip UK shares to start. From here you can build the foundations of a portfolio and expand into the small-cap universe at a later date.
Setting up a regular investment plan is a great way to build wealth over the long term. Even a small investment of £50 a month in UK shares can go a long way.
This is another option for investors who want to invest a lump sum but don’t know where to start. Most online stockbrokers now allow investors to set up a monthly investment plan, with figures starting from as little as £25 a month.
This approach could allow you to learn more about the market as you go and benefit from pound cost averaging. Pound cost averaging involves investing a fixed amount in the market every month, reducing the impact of volatility on the portfolio. You buy more when the market falls and less when it rises. Some studies have shown that pound cost averaging into UK shares helps investors achieve higher returns in the long run.
The post How I’d invest small amounts of money in UK shares appeared first on The Motley Fool UK.
Rupert Hargreaves owns shares in Unilever. The Motley Fool UK has recommended GlaxoSmithKline and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020