How to invest when you don’t have much money

Karl 9th Oct 2023 No Comments

Reading Time: 5 minutes

A host of new investing apps and platforms have sprung up over the past decade or so, and this has meant that gaining exposure to the stock market is no longer a rich person’s game.

Yet while buying and selling shares is now easier than ever before, you might think that you need a decent chunk of capital to begin your investing journey.

In this article, we’re going to explain why this may not be the case!

Keep on reading for all the details or click on a link to head straight to a section…

How to invest with little money: 5 tips
How to get started investing

How to invest with little money: 5 tips

If you’re keen to have some exposure to stocks, shares and the like, but you don’t have a lot of cash, then don’t immediately think that investing isn’t for you.

However, before diving into the choppy waters of the stock market, take note of the following 5 tips…

Tip 1: Sort an emergency fund first

First things first, while there are many reasons to invest rather than save, if your bank balance is near zero, then it can be a good idea to prioritise building up an emergency fund before investing.

An emergency fund – which should typically be worth 3-6 months of your monthly expenses – can act as a safety net in times of crisis, potentially saving you from expensive, last-minute borrowing.

And on the subject of borrowing, if you’ve any outstanding loans, or you’re paying interest on credit card debt, then it’s a good idea to sort these things first before you think about investing.

Of course, you may wish to have a savings pot worth more than 3-6 months of your expenses. It’s a matter of personal choice.

Tip 2: Think about your pension

Even if you couldn’t tell the difference between a dividend and a bond, if you’re an employee then there’s a fair chance you’re already invested in the stock market.

That’s because most workers contribute into a workplace pension and these are usually invested in stock market funds.

In brief, your workplace pension is a private pension pot. Your employer is legally obliged to match a minimum of 3% of your workplace pension contributions – some employers will go above and beyond this.

These employer contributions are essentially ‘free’ money, so if you don’t have a workplace pension, or you aren’t making the most of your employer’s contributions, then you may wish to think about prioritising this before venturing into the world of investing.

It’s also worth bearing in mind that workplace pension constitutions come from your pre-tax income, which is another big benefit. To learn more about the workplace pension and how it works, take a look at our article that explains all you need to know about pensions.

Tip 3: Consider drip-feeding your investments

Once you’ve thought carefully about your pension and having an emergency fund, you may be ready to start investing.

To begin your investing voyage, one of the biggest decisions you must make is to choose suitable investing platform, preferably one with low fees. Many platforms allow you to invest from as little as £100, so you won’t need a big bank balance to get started.

Once you’ve chosen a provider, you can make contributions to your portfolio by drip-feeding some of your disposable income. This can be a great way to build up your investments without having a start with a massive lump sum. It can also help you kick-start an important investing habit.

Over time, you’ll may be surprised to see just how quickly your investment pot grows, especially if your portfolio manages to earn a juicy return. (Pssst… do read up on the magic of compound interest!)

Tip 4: Up your contributions with any future pay rises

Once you’re making fixed regular contributions to your portfolio you’ll almost certainly be on the path to building up a sizable investment pension pot, no matter how small your initial contribution.

Yet if you start small when you begin investing – perhaps because you don’t have a big income – then always be open to the possibility of increasing your contributions in future. For example, if you achieve a promotion at work, or bag a decent pay rise, then you’ll probably be in a good position to up your contributions.

While it may be tempting to enjoy the fruits of a promotion or pay rise immediately, putting at least a percentage of it into your investment pot could pay dividends in future – quite literally!

Tip 5: Maintain a long-term mindset

Arguably the best way to invest is to consider it a marathon, not a sprint.

In other words, investing shouldn’t be seen as a quick and easy route to riches. Instead, investing should be seen as a way to build up your wealth over time, through discipline, patience, plus a touch of luck.

Thinking of investing as it’s a long-term thing can also help you overcome any initial misgivings about only contributing small sums at the beginning of your journey.

How to get started investing

Now we’ve explored some tips on how to get your investing habit under way, you may be wondering how to actually invest.

On this point, we should say that investing is a personal decision, and the way you should invest will ultimately depend on your investing style, financial goals, and tolerance for risk.

Generally though, exchange-traded finds (ETFs) are often popular with beginner investors, especially those with low capital, as they’re typically a cheaper option than actively managed funds. eToro, and Freetrade are particular popular among new investors given that these platforms allow you to invest from as little as $10/£2, though there are other low-cost platforms out there so do your research.

If you’re a newbie investor then it’s also worth exploring robo-advisors. These are automatic investing tools that use the power of algorithms, plus your answers to behavioural-type questions, to put together an investing portfolio on your behalf. Fees are often pretty competitive too.

If you’re interested in learning more about how automatic investing works, take a look at our article that explores whether robo-advisors a good way to invest.

Are you thinking about investing for the first time? If so, take a look at our comprehensive article that explains how to invest for the first time. And while we’re at it… do sign up to the MoneyMagpie bi-weekly Investing Newsletter for a unique way to digest our investing tips. It’s free and you can unsubscribe at any time.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.