You don’t need much money to start investing and turn a profit. Companies have skyrocketed in value since the early 2000s. If you invested just £100 in Amazon in 2005 (when it was just $35 per share) and sold it today, you would have more than £5,000. What’s even more mind-blowing is if you invested £100 per month and then sold your shares today. Crazy, right? The best part is you can easily start to invest with just £100.
Because we’re starting with just £100, our broker of choice will need to have zero commission fees on trades so we can stretch our funds. I’ve rounded up some of the best brokerage apps you can use on your smartphone in the UK. Most brokers such as these will offer zero trade fees, allowing 100% of our money to go into share purchases. Fear not if you’ve never used a brokerage firm before. Think of them much like a bank or simply a middle-man between yourself and the companies you’ll purchase shares of.
GIA or ISA
Usually, you’d open up a general investment account (GIA), but if you’re a UK resident, you can open what’s known as an independent savings account (ISA). What’s the difference between a GIA and stocks and shares ISA? Well, not much. The only real difference with brokerages that provide both is the tax you pay. The UK government will ask for you to declare any proceeds made through the selling of shares or the collection of dividends in a GIA.
A stock and shares ISA allows you to reinvest such proceeds without paying tax on them, further adding to the amount you can compound. You should open up an ISA and use up your £20,000 limit before moving to a GIA. There is a catch to the ISA, however, and that’s the £20,000 annual limit. This means you can only put £20,000 into an ISA every year. And that’s across all ISAs, regardless of provider.
But the limit is only for deposits. So long as you do not deposit more than £20,000 cash into ISAs in a tax year, you’re within your limit. Dividend and proceed reinvestment does not count towards this limit.
What to invest in
With a small amount to start with, an exchange-traded fund (ETF) is a good place to start. An ETF is essentially a collection of stocks that follow a specific index. For instance, instead of investing £100 in Apple specifically, we could invest the same amount in an ETF that follows many stocks with Apple included, like the iShares Dow Jones US Technology ETF (IYW).
This has some benefits and drawbacks. The positive to an ETF is there’s less risk involved. Using our example with Apple, if we invested £100 and the stock tanked, we could end up losing money if we sold it. If the same occurred and we had invested in the ETF, the result would be heavily mitigated if other stocks continued to perform well. The opposite is true, however.
If Apple soared and we had the ETF, we wouldn’t see much of the gains. So an ETF can work both ways. It’s a fantastic way to safeguard your money in the stock market but does mean you likely won’t see substantial losses and gains experienced by investors who pick and choose companies to support.
Hold safe dividend stocks
An ETF like the iShares Dow Jones US Technology would provide an annual return, which could be reinvested, but we could take things to another level by investing in safe dividend stocks. There are plenty of stocks out there that are considered safe by experts and provide decent returns in the form of dividends.
A company like Realty Income (O) is what’s known as a REIT — or real estate investment trust. It’s one of the dividend aristocrats investors hold dear. What this company does is rent buildings to clients through long-term leases and collects monthly payments. The majority of the funds acquired goes into purchasing new property or paying out dividends to shareholders.
The company boasts that it’s the “monthly dividend company” and they’d be correct. Realty Income has increased its dividend payments for 91 consecutive quarters. It has paid dividends for 600 months and has not cut the dividend since 1996. That’s quite the achievement. The best part is the monthly dividend payments, which allows you to reinvest on a regular basis, even if you fail to set up a portfolio funds injection schedule.
Grow your money
The goal with long-term dividend-focused investing is to be in the game for the long haul. This isn’t about making a quick buck, but rather setting yourself up for a comfortable retirement. The best way to achieve this is to regularly invest in the stock market by setting up a payment schedule to bolster your portfolio.
Using a stocks and shares ISA, you can invest up to £20,000 per year, which can add up quickly, especially once you factor in dividend payments in subsequent years.