How to Invest Your First £100: A Beginner's Guide
Every single year, things are getting more expensive. The food we eat, the rent we pay, even Netflix. In 10 years, your £100 might still be £100, but what it can actually buy you might only be worth £70 in today's money. So, with that said, we need to find a way that we can beat this and investing is a great start.
Why Investing Matters
If you've ever thought that investing was only for the rich or that it's too risky or complicated, don't worry. I get it. I used to think exactly the same thing. I was very much earning an average salary trying to save, but every year my money seemed to just do less.
But then I realised something. Investing isn't actually about making lots of money. It's more about protecting what you already have and slowly building financial freedom over time. And I think that's the real way of getting rich.
If you are the type of person that's sitting there thinking, "I'll just start investing when I have more money," this probably isn't going to change your mind. But if you are tired of watching your money lose value while you're doing nothing about it, then do stick around because today I'm going to walk you through every realistic option for your first £100 to be invested.
1. High-Interest Savings Account (Lowest Risk)
This is probably the lowest risk investment that you can make, but it is also going to be by far the one with the least earning potential. However, you are going to need somewhere safe to store things like an emergency fund and any short-term savings.
For example, if you're looking to buy a house in the next 3 to 5 years, putting that deposit into one of the other options on this list that I'm going to be talking about probably isn't the best idea. But also, don't expect to be making much on that deposit either.
A high-interest savings account is the most secure option that you're going to have. Your money's protected up to £85,000 actually under FCS in the UK. And depending on the provider you pick, you can earn a guaranteed rate of interest. Look at it as like kind of keeping your money in a super safe box that slowly fills with a little more money every single month.
2. Index Funds and ETFs (Medium Risk)
If you want your money to actually start growing, this is where investing into the stock market comes in, specifically a well diversified index fund or ETF. I've ranked these as medium risk here because whilst they're not risk-free like a savings account, they do have a very impressive track record of solid returns over the last few decades.
What is an Index Fund?
The best way I like to explain it is that buying an index fund is like buying a basket of companies instead of just investing into one. For example, if you bought Apple stock and Apple stock only, your success depends entirely on Apple as a company and how well it performs.
However, if you invest into something like an S&P 500 index fund, you instantly own a slice of 500 top US companies such as Apple, Google, Microsoft, and even Tesla. Just look at it as diversification made easy. You don't need to pick any winners or constantly trade on a daily basis. Everything here is basically done for you.
The Power of Long-Term Returns
Historically, the S&P 500 has returned an average of 10% per year over the last 30 years. So, if you did invest £100 per month into a fund that tracks this every month, and if you did it for the next 10 years and performance did stay the same as the past, you'd have around £21,000 in your investing account by the end.
Now, if we were to compare that to just saving your money, you'd actually only have around £12,000. So, I'm sure you can see the difference.
3. Property Through REITs (Medium Risk)
Okay, so you might be thinking, "£100 and property? What's he on about?" But hear me out. This is where I want to talk about REITs, or most people know them as real estate investment trusts.
The best way I'd like to describe these is think of it like a fund, but just for real estate. Essentially, what you do is buy shares in a company that owns or finances different types of properties, and in return, they will share the rent with their investors.
One of the best things about investing in a REIT is that by law, 90% of its profits must go back to its shareholders. And it's very simple to do. Basically, when it comes down to it, the more you invest, the bigger kickback that you're going to get.
Just like index funds and ETFs, I'm going to rank these as medium risk because they do provide steady income and they give you a taste of owning the property market without having to worry about a dodgy tenant, but they are still an investment. So, there is still that side of risk.
4. Individual Stocks (High Risk)
Now, those last three were relatively sensible options. But if your risk tolerance was a little bit higher, then the next way you can invest £100 per month is through individual stocks.
Individual stocks are very much what they're called. I'm talking about companies like Apple, Microsoft, Nvidia, and maybe if you wanted to have more control to pick companies you believe in or learn how the stock market really works. This is where investing into individual stocks could be a really good option.
Understanding the Risk
Buying individual stocks means you're going to be owning part of a single company. But that also does mean there's going to be higher risk to it. If the company does well and their stock goes up, this would typically mean that your investments would go up much higher than maybe something like an index fund. But if it does fall, it's exactly the opposite.
Look at it like putting all of your chips on one number instead of spreading them across a board in a game of roulette. For example, let's take the S&P 500. When you invest into this, around five or six percent of your money is going to go into Apple stock at the moment. However, buying Apple stock by itself, you're going to be 100% committed. So, you're going to get a bigger reward if it goes well.
My Personal Experience
If you did want to look at individual stocks, one thing you're going to have to understand is what you're investing in. You're going to want to choose companies that you understand, that you like, and ones that you can imagine being around for decades to come.
I actually used to invest heavily into individual stocks myself and I won big on some but I did actually lose bigger on others which is why these days I just prefer the simple life of sticking to index funds and ETFs.
Final Thoughts on Individual Stocks
To wrap this up: individual stocks, high risk, high reward, make sure you know what you're doing and don't let anyone else tell you what a stock is going to do whether it's going to go up or down. They truly won't have a clue. No one does.
These are the options that I've had my personal experience with investing £100. There are of course many other ways that you can invest, but these are things I would never suggest to a beginner investor.
I think it's so important that your experience with investing for the first time is a positive one, as a bad one can scar your confidence for life, and you could end up missing out on some of the greatest ways to build wealth for your financial future.
Hope you found this helpful. Let me know if you have any questions!
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