I have £300 in spare cash which I’d like to invest.
How should I invest the sum and what are the best options?
£300 is not a large amount of money in investing terms but you can still make money
Myron Jobson, of This is Money, replies: £300 is a good chunk of money to your average John or Jane Doe, but it is considered a modest amount in investing terms.
At this level it is unlikely to be cost effective paying for financial advice to help you decide where and how to invest, so people will most likely head down the route of being a DIY investor.
With £300 you can still invest to make some money if you know where to look and think long-term.
But before making any investments, it is important to consider how long you plan on keeping your money invested for.
You should also figure out how much of a risk taker you are. After all, the value of any investment can fall – but those at the highest risk of a tumble typically offer an appetising reward if all goes as planned.
It is also worth thinking about how engaged you want to be.
Do you want to cherry-pick shares yourself, or do you want a professional fund manager to do it for you? Alternatively, you may prefer to sign up to an online investment service, typically called a robo-adviser, that assesses your risk and chooses an investment portfolio for you.
In addition, don’t forget about the price tag your investments come with.
Passive investments – those that simply track a given index like the FTSE 100 – are generally cheaper than actively-managed funds, where a manager aims to beat the market benchmark.
You should also aim to avoid fads. Jumping on a bandwagon because you think you will make quick money is not an investment it is a gamble. That can be lucrative or go wrong swiftly, as the halving in the price of bitcoin from almost $20,000 before Christmas to around $10,000 now has shown.
So, while it might be tempting to jump on the bandwagon and invest in Bitcoin, Litecoin, Ethereum and other cryptocurrencies tipped by your taxi driver to deliver eye-watering returns, remember that’s not investing.
With this in mind, we’ve asked an expert in the field of consumer investing to provide some guidance to help you on your way.
Mary Kay of Boring Money says the first thing to think about is how long you wish to invest for
Mary Kay, chief executive of Smart Money, replies: The first question we have to ask is ‘How long?’ As a rule of thumb, if you’re looking to shares, you should be able to set this money aside for at least 5 years.
Why? To avoid being a forced seller.
In the first week of February this year, global stock markets had a mini-meltdown although they have since made up some of the lost ground.
To take our example to its extreme, if you had invested for a week, you would have lost up to about 7 per cent.
Pushing these timeframes out, if you invest in shares for only a year, it is perfectly normal to witness ups and downs which could see you lose out.
Think back to 2008 for example when we saw the financial crisis.
The longer you invest for, the higher the odds that the stock market will do better than cash.
A well-respected survey by Barclays reported that over any 10-year period since stock markets began, you are 90 per cent more likely to have done better in shares than in cash.
What should you invest in?
The second question is What should I invest in? The key word here is invest not gamble.
I’ve lost count of people asking me about cryptocurrencies over the last 6 months. Bitcoin fell from $9,500 to $6,000 within a week in early February and is now on the rise again.
It’s risky stuff which very few people understand. I have no doubt that blockchain and cryptocurrencies will be mainstream, but bitcoin is just one ‘flavour’ and feels overdone to me.
Some 80 per cent of all bitcoin are held by less than 1,000 accounts. Shady stuff and not the basis of a new financial system!
Back to the more tangible world of the stock market and behind all the boring jargon and waffle from investment firms, investing in shares is simply investing in human endeavour and initiative.
For most that involves hitching your fortunes to those of the world’s largest companies.
Buying into a actively-managed ‘fund’ is like buying a ready-made basket of shares, picked and blended by a professional.
A global shares fund could see you own a bit of Microsoft, Amazon, Heineken, Samsung and other giant brands. It’s no more complicated than Dragon’s Den – fund managers try and pick companies which they think will grow, make money and turn decent profits.
Shares are the most volatile type of mainstream investment and can jump up and down in value a lot.
Bonds (basically IOUs from Governments and companies which pay investors some income for their loans) are typically the more bland investment cousin and can be used by investors to turn the rollercoaster into a more sedate ride.
If you’re investing for the very long-term you may want to only choose shares. If you want to smooth out the peaks and trough, you will want to use some bonds as well and for this, a so-called ‘multi-asset’ fund is your easiest option to investigate.
How much could you make?
Your third question is probably going to be about numbers. How much could I make? And how much could I lose?
As a very loose rule of thumb I think you are doing well if a balanced portfolio of shares makes you about 5 per cent a year after fees.
It’s very hard to give these guides, as some years it could be 20 per cent and other years minus 20 per cent.
Riskier smaller companies, or certain less developed markets can offer the potential better returns but with a large potential risk of loss.
And what about a mixed bag of British names? Well the FTSE 100 fell by nearly 30 per cent in 2008 but made the vast majority of this back in 2009. So you need to be prepared for these bad years which will come (hopefully infrequently but they are an occasional fact of investing life).
How to be a successful investor is This is Money’s easy to understand and jargon-free guide to the world of investing.
The guide is written by This is Money editor Simon Lambert, who writes a regular Minor Investor column and presents The Investing Show.
There are a plethora of DIY platforms as well as robo-advisers that facilitates investments but they don’t all do the same things
What are the best options?
Finally the last question might be, Sounds great Einstein, but how do I actually do this?
At this stage your choices are typically:
A) I have no idea so please can someone just do it all for me. B) I have some idea of what Id like but need a bit of help. C) This is patronising, I know what I want and I want lots of choice.
In the last month I have opened up test accounts with 28 investment providers online.
If you fall into the category of the confused and just want someone to do it all for you, then I suggest you look at Nutmeg, Wealthify, UK-newcomer Wealthsimple or Vanguard.
Nutmeg has a simple quiz which will determine which one of their 10 ready-made investment baskets are right for you. It is one of the most pain-free ways to get a diversified global portfolio which is managed for you.
Wealthify (household name Aviva own a major stake which offers comfort to those suspicious of smaller financial start-ups) lets you start from £1 so there really is not excuse not to bite the bullet and ease your way in.
And Wealthsimple is a big North American player which has some serious backers and a very different approach to the usual staid financial offerings.
Vanguard is one of the world’s leading low-cost investment managers. Their ‘LifeStrategy’ range is an example of a ‘multi-asset’ fund and a very simple way for less confident investors to save.
You will just need to navigate your way into the right ‘flavour’ of this fund for you and the site currently gives you very little help to do this. But it’s a very well-respected brand in the investment community.
If you want to find your own way around with some help on tap if you need it, Charles Stanley has a low-cost online platform which has all the choice most investors could need but has some fund Best Buy lists and ready-made portfolios.
AJ Bell Youinvest is another solid, low-cost option with some ready-made options.
Finally if you are confident then this piece is not really aimed at you, but for higher-value portfolios held by savvy investors, Interactive Investor is hard to beat on charges and has most investment types you could want.