At Steps to Investing we often get asked about the gizillians required to get those toes dippin’ – ‘Isn’t this reserved for folk who tend to refer to their homes by its name?’ No. Absolutely not. The answer is £1. Well, not quite that simple, but below is a rough idea. I won’t go through all the minimums for every service out there.
But first – regular or lump sum?
When you start investing with various services online, you’ll probably get asked whether it’s a lump sum or regular monthly investing that floats your particular boat.
There is some debate over which is better: if it’s a lump sum then you will be entering the market at a particular point in time – up OR down – so your entire investment will follow-on depending where the market goes next, which you may find a nerve-jangling proposition. If it’s ‘drip-drip-drip’ every month then you will be buying into the market when it’s up AND down, which means you’re not in the game of timing the best point to enter the market.
Over the long-run, however, research shows lump sums do better as you are effectively investing a larger amount for longer. But even fund managers admit timing the market can be a mug’s game, so this is really down to how comfortable you are with investing.
What do we think: well, do both!! Put in what you can afford now and test what it’s like to be in the markets, and then continue to drip money in by way of a savings habit. We refer to it as an ‘investing habit’.
Go on then, how much do I need?
Share dealing services
These are online brokers where you can go onto their websites, open an account like an ISA or a SIPP, and start investing in a wide range of funds, investment trusts or shares.
- Funds – Lump sum minimums as low a £1, but up to £100 for Hargreaves. Regular monthly investing tends to be around £25 minimums, and there are generally no dealing charges on funds.
- Shares, trackers, investment trusts – No minimums for some, but at least one share. The big thing here is dealing charges – the charge per trade – which can be expensive (£11.95 for Hargreaves), but FREE with certain services like Freetrade (but the range of investments will be limited). Importantly, regular monthly investing in shares often brings down the dealing charges massively as they lump everyone’s orders together, which, as you can imagine, costs them less. One is example is AJ Bell’s dealing charges, which drop from £9.95 per trade down to £1.50 with regular monthly investing. They also tend to offer lower charges if you trade a certain amount in a month, like 10 trades.
Robo-advisors
These online services offer a more managed service, using simple computer-generated risk assessments which will bucket you into a risk level and then automatically invest your cash in a number of underlying funds, usually cheap index trackers (also known as ETFs).
- Broadly – because you’re actually investing in a portfolio of underlying funds, the minimums tend to be higher, so for Moneyfarm it’s £500, for Scalable Capital it’s £10k; BUT Wealthify it’s just £1 or £50 for a pension. Shop around depending on how much you have.
- Round-ups – these types of services automatically round-up whatever you buy to the nearest pound, and then invest that little extra in the markets regularly. So, if your coffee was £2.40, you would be charged £3 and the extra £60p would go into your investing account. Moneybox is a good example of this and is a good way of testing the drip-feed approach without having to think about what to buy.
Tips to Investing
- Nowadays there are no financial barriers to investing – just begin!
- Start small as you test how the markets operate.
- Develop an ‘investing habit’ – dripping cash into the markets gets around the question of ‘when is a good time to start’.