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Think you don’t earn enough to save and invest? Read this now

Rupert Hargreaves
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It’s never been as easy as it is today to start investing. Over the past few years, a whole range of companies have launched with the single goal of making investing and saving easier. As such, you can now get started with just a few pounds a month.

A few pounds a month

Most online stockbrokers now offer a regular investment plan. The lowest monthly requirement is only £10, and most brokers provide reduced trading rates for monthly investors.

Selftrade, for example, charges a dealing fee of £1.50 for regular investments into listed securities. Dealing in mutual funds, unit trusts and OEICs is free.

Online brokerage Freetrade doesn’t charge any dealing fees for trading individual securities. All you need is a phone and a few pounds to get started investing. Moreover, if you refer a friend to the Freetrade app, you could get a free share worth between £3 and £200.

But if you don’t like picking your own investments, online platform Wealthify can construct and manage a portfolio for you. There’s no minimum contribution to the platform and savers can choose to set up a regular direct debit or stick with one-off deposits.

Such platforms allow savers to build an investment portfolio with relatively small contributions. This is important, because the sooner you start saving, the more time there is for the power of compound interest to work its magic on your hard-earned cash.

Compound interest

Compound interest is the process of your money making money. This is one of the most powerful tools investors have to create wealth over the long term. Therefore, it’s vital to get your money working for you as soon as possible.

You can do this today with a low-cost dealing account and a simple passive tracker fund. The FTSE 100 and FTSE 250 both offer attractive investments for savers who are looking to make a little go a long way.

For example, over the past few decades, the FTSE 100 has produced an average annual return for investors in the region of 7%. At this rate of return, a small initial investment of just £10, and subsequent monthly deposits of a similar amount, would yield a savings pot worth a £12,350 after three decades.

After five decades of saving, these small regular contributions would be enough to build a pot worth £55,000, according to my calculations.

A large savings pot

These numbers show just how straightforward it is to build a substantial savings pot with relatively small contributions every month. Even if you can only afford £10 a month, it’s sensible to start saving for the future today.

The sooner you start putting money away, the sooner compound interest can start working its magic. And the more time you give compound interest, the easier it becomes to make money.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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