Considering an investment? There are strong arguments for reallocating part of your finances from traditional savings accounts to the stock market. Although investing carries some risks, the potential long-term benefits can be substantial.
Many individuals hesitate to invest, believing that substantial wealth or a certain age is necessary to begin. However, even if you can set aside only £50 each month, it’s worthwhile to explore the possibilities. While there are essential considerations to keep in mind before diving in, it’s seldom too early or too late to start investing.
For most individuals, selecting funds is often a more prudent choice than purchasing stocks in a single company. Funds allow you to mitigate risk and entrust the buying and selling of shares to a professional fund manager.
We consulted experts for advice on where to invest £50 monthly, tailored to various stages of life.
If you haven’t done so already, building an emergency fund that covers three to six months of critical expenses is advisable. This fund should be easily accessible for unexpected financial needs.
Once you establish an emergency fund, it’s essential to define your investment objectives, timeline, risk tolerance, and desired returns, as highlighted by Russ Mould, the investment director at AJ Bell. This will guide you in selecting the appropriate asset classes and investment platforms.
It’s important to note that while age is a relevant factor when investing, it should not be the sole criterion for decision-making. Jason Hollands, managing director at Bestinvest by Evelyn Partners, emphasizes that the time frame for accessing funds and the investor’s comfort with market fluctuations should primarily influence risk levels and fund types.
Your twenties can be a time of uncertainty as you embark on your career and set personal goals. Hence, it’s crucial to prioritize building cash savings, possibly through an instant-access cash ISA.
Daniel Hough, director and wealth manager at RBC Brewin Dolphin, cautions that keeping cash over an extended period can lead to erosion from inflation. He suggests that if you anticipate needing access to your funds within three to five years, a cautious fund through a stocks and shares ISA could be an option, though growth potential may be limited, and losses are possible depending on market conditions.
Younger investors might capitalize on their time in the market by considering a growth portfolio, such as the Evelyn Smart Growth Fund, which allocates at least two-thirds of its investments to shares, according to Hollands. He advises against targeting specific returns, stating that achieving consistent returns is unfeasible; instead, aim for returns exceeding inflation by at least 2.5%, with higher expectations for riskier portfolios.
Your financial goals should dictate your risk tolerance. For instance, a twenty-something saving for retirement may be more inclined to take risks than someone in the same age group preparing to purchase a home in five years, notes Dan Coatsworth, head of markets at AJ Bell.
One option is to choose a ready-made portfolio that aligns with your risk profile. Many investment apps and websites offer such products, which invest in managed funds that are regularly adjusted.
As you approach your financial goals, it may be wise to reduce your investment risk.
On the other hand, for those with a higher risk tolerance, investing £50 monthly in a global equity tracker fund can provide diversified exposure across various sectors and regions, according to Coatsworth. Among the popular options with AJ Bell clients in April were the Fidelity Index World Fund and HSBC FTSE All World Index Fund, which have ongoing charges of 0.12% and 0.13%, respectively.
While Hollands concurs that index trackers or global equity funds are viable choices, he warns that a high-risk, equity-heavy approach could be detrimental over shorter periods. A multi-asset fund that diversifies investments across shares, bonds, property, cash, and alternatives like gold may be more suitable.
For those seeking to limit their exposure to the stock market, Vanguard’s LifeStrategy range of funds offers various mixes of shares and bonds. For instance, one fund allocates 20% to shares and 80% to bonds, while another invests entirely in shares. Bonds represent loans made by investors to governments or companies in exchange for fixed interest rates.
For investors with shorter- to medium-term goals, Hollands suggests considering the Personal Assets Trust, a prominent British investment trust that invests in large, established companies, gold-related assets, and government bonds.
In your thirties, you may encounter significant life milestones alongside typically increasing earnings. The world of investing can seem daunting, which is why lists of “best funds” can serve as useful starting points, although personal research is always essential.
Investment firms like Bestinvest maintain their own curated lists.
If you’re starting a family, it’s prudent to think ahead about saving for future expenses like university fees. If you can commit to saving £50 monthly from your child’s birth, you’ll have ample time to accumulate a substantial amount.
Coatsworth notes that many parents begin saving for university once their child enters secondary school, providing around seven years to build a significant fund, even if this is a shorter timeline than starting from birth.
You can invest through a tax-free junior ISA, allowing contributions of up to £9,000 per tax year, with the child gaining access to the funds upon turning 18.
