Investing is a great way to grow your money over time, but it can also seem like a daunting task, especially if you don’t have the big bucks many people believe are necessary to be successful. However, the reality is that you can build a solid investment portfolio with a smaller amount of money.
YOUR CAPITAL IS AT RISK
With so many different options available, it can be hard to know where to start. If you're looking for some of the best small investments in the UK, you've come to the right place.
Table of contents
Methodology
Taking into account the minimal amount of cash available to invest, each option was chosen based on their affordability. In addition, we also considered diversification as a key factor, with most of the asset types chosen enabling investors with a smaller sum to diversify their portfolio easily.
ETFs
ETFs are baskets of securities, such as stocks, bonds, or commodities, traded on stock exchanges. Exchange-traded funds are a popular and accessible option for individuals seeking to diversify their portfolios and gain exposure to a wide range of assets.
| Pros | Cons |
|---|---|
| Diversification: They provide instant access to diversification via the various securities included. | Fluctuations and Risks: The value of an ETF is influenced by the performance of the underlying assets it tracks, so if the index or sector the ETF tracks experiences a decline, the ETF's value will also fall. |
| Affordability: ETFs have minimal investment requirements, making them accessible to investors with limited funds. | Share Price: ETFs with a lower share price may be more affordable but may also have wider bid-ask spreads and lower liquidity. |
| Ease of access: They trade similarly to stocks on an exchange. |
Penny and Growth Stocks
Investors looking for smaller investments may be drawn to penny stocks and growth stocks, as they offer the potential for higher returns. However, it is essential to remember that these stocks also carry increased risk.
Penny Stocks
In the UK, penny stocks are shares of small companies that trade for less than £1. Many of these stocks will be listed on the Alternative Investment Market (AIM) on the London Stock Exchange.
| Pros | Cons |
|---|---|
| Due to the companies having a low valuation, their share prices will be much more affordable for investors with lower amounts of capital. | These stocks are often highly volatile, meaning you can quickly see the valuation of your investment plummet. |
| Investors will also be able to acquire more shares of their chosen company. | They are also, in many instances, illiquid, making them harder to buy and sell. |
| While you may be able to better afford shares of these companies, they are also more likely to fail than larger, more established names, which puts your cash at an increased risk. |
Growth Stocks
Growth stocks are the shares of companies expected to experience significantly higher growth over an extended period, growing at a faster rate than the average stock on the market. Names such as Amazon and Netflix come to mind. Companies that are considered growth stocks are often found in emerging industries or those with disruptive technologies.
| Pros | Cons |
|---|---|
| While shares of stocks such as Amazon may be too pricey, UK investors with smaller amounts of cash can look for smaller, less well-known names in emerging industries. | These stocks are also more volatile than more traditional investments. |
| Emerging growth stocks, if recognised early enough, will generally have lower share prices. | |
| They have the potential for significant gains. |
Investors in growth stocks should have a long-term investment horizon and be prepared for short-term fluctuations in the stock price.
Index Funds
An index ETF tracks a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. Here’s a list of the best S&P 500 index funds for UK investors. For investors with a limited amount to invest, index funds are an excellent choice.
| Pros | Cons |
|---|---|
| Low investment minimums: Due to the passive management structure, index funds have lower fees compared with actively managed funds. | Fees: While they are typically lower than actively managed funds, the fees can still eat into potential returns. |
| Diversification benefits: Index ETFs provide instant diversification by tracking a specific market index, spreading the risk via one investment. | Control: When investing in an index fund, you don't have any control over the individual stocks or bonds that are held in the fund. |
| Ease of access: shares of index funds can be easily purchased. |
Where to Invest
All of the potential options listed above can be invested in via an online brokerage account. However, make sure the platform you sign up with is appropriately regulated in your region and has the asset you want to invest in on its platform.
Best Brokers to buy Small Investment Shares:
eToro: 76% of retail CFD accounts lose money
Take a lookTickmill: FCA Regulated
Take a lookIG: Over 16k stocks to trade
Take a lookIf you are ready to add some small investment shares to your portfolio you'll need a broker that is regulated, has low fees and a user-friendly platform. Finding one can be a daunting task, which is why we've selected some of our favourites that tick all of these boxes to help you get started.
Alternative Investment Options
While the investments suggested above should provide various opportunities for those in the UK looking for smaller investment options, there are alternatives that may want to be considered.
Real estate mutual funds and real estate investment trusts (REITs) both provide investors with an affordable way to invest in the real estate market.
High-yield savings accounts are also another option to consider, especially with elevated rates, providing investors with a way to earn money on the cash stored in a bank account.
Crowdfunding is another option, but it is seen as very high risk as many new ventures tend to fail. However, many crowdfunding platforms have low minimums for investors to open an account and invest.
What to Consider
It's crucial to carefully consider various factors that can influence your investment decisions. Here are some key aspects to examine before investing.
Risk Tolerance: Your ability to withstand potential losses is key. If you're risk-averse, consider low-risk investments, which offer lower returns but greater stability. For higher risk tolerance, you might explore stocks or ETFs, but be prepared for potential fluctuations in their value.
Investment Horizon: If you have a short-term horizon, consider how that may impact your potential investment strategy. For example, don’t invest in an asset you see as a long-term winner if you only want to hold it for six months.
Diversification: Even with a small amount to invest, diversification is possible. Investing in assets that allow you to diversify, such as an index fund, will help reduce the overall portfolio risk by minimizing the impact of losses in any one asset class.
Fees and Charges: If you have a small amount to invest, fees and charges can really eat into your account. Make sure to consider the various fees and charges on the platform before investing.
Limitations: With a smaller investment, there may be limited access to certain opportunities. For example, some investment funds have minimum investment requirements that might exceed your current capital.
Why Small Investments Are Popular
Small investments have become increasingly popular. There are various reasons why, including:
Accessibility: Small investments are accessible to almost everyone, regardless of their income or financial situation.
Compounding: Starting small and compounding can grow your wealth over time. Small investments can grow when compounded over the long term.
Diversification: You may have a solid amount of capital to invest but only want to invest in small sizes. As a result, the small investments allow you to significantly diversify your portfolio across different asset classes.
A Starting Point: Investing small amounts can give beginner investors the opportunity to learn about the stock market and different investment strategies without risking too much money.
