Here are some tips for people who wish to start investing but don’t have large sums of money available:
1: Make sure you have a pension fund. Pensions pay out an income from a future date, based upon a pot of money that has been invested over a period of years. Some companies provide pension schemes as a matter of course for their employees, but scarily many individuals have no pension arrangements at all. Pension payments go into an investment fund, run by an investment company. Pensions are a tax efficient way of investing as payments are net of basic rate tax. In the UK, this means that the government pays an additional 28.21 for every 100 invested, so well worth setting up even if you’re only paying in circa 50 per month!
2: Tax efficient savings accounts. In the UK you can open an mini cash ISA (Individual Savings Account) and pay in up to 3,000 per year and you won’t pay any tax on the interest generated. You can also access your money at any time without incurring a penalty for withdrawal. There is no risk to your money as it’s a standard savings account. For readers from outside the UK, it will be worth checking to see if similar tax free accounts are available).
3: Tax efficient share schemes. Again in the UK, as well as paying up to 3,000 into a mini cash ISA, you can also pay up to an additional 4,000 into an investment ISA. Most banks run these and you can choose from a range of index tracker funds depending on the level of risk that you want to take. The good thing about investment ISAs is that you can buy into a fund that contains many top FTSE companies rather than putting all your money into 1 or 2 individual companies. This diversification should help to reduce the risk to your money. You can also set up quite small payments (e.g. 50 per month) which again is a good way to start to build up your investment portfolio when you don’t have huge sums to play with.
I’ve focused here on savings and investment options that are both tax efficient and enable you to start with relatively small payments. The key with investing is that you make it a long term strategy and that you step up payments as and when your disposable income increases.