You can start investing right now and can start investing with just £200.
If you’re going to invest, you’ll need to find a good investment opportunity, whether it’s a stocks and shares ISA, regular ISA or even Premium Bonds.
Just because you may not have invested before, doesn’t mean you can’t start today. Personal pension plans are on the increase as a result of relatively recent Government pension schemes encouraging businesses to help their employees save, but these can not rival the old final salary pensions.
Investing for you and your family today is better than investing tomorrow, much better than next month and considerably better than starting next year.
People are now for the first time reaching 30 before being in a position to purchase their first home. As a result, the equity available in homes will be less. In the past many of us relied on equity built up over a 40 year period as a pension.
Downsizing and living off the remaining proceeds may be more challenging for future generations.
If investing is something you are considering, you’ll need some suggestions and options, and some ways to invest your £200.
What should you do if you have £200 to invest in 2021?
10 years ago, it was quite common to add savings into a standard UK bank savings account and earn between 3%-6% interest. The more you invested, the higher the interest rates. We have not seen this level of interest for some years now.
High street bank current accounts pay next to zero in interest and start from just 0.1% interest per year.
Yes, that means your £200 investment on January 1st is worth, on 31st December, a disheartening £200.20!
Twenty pence passive income a year. Despite the magic of compound interest, there is no magician in the world that will make any reasonable return from this.
Your £200 investment in Year 1 would be worth £202.00 in 10 years-time. A total investment earning of £2 in 10 years.
We will need to find better ways to invest our £200.
Stocks and Shares ISA
ISA’s are not a new investing concept. The ISA Government scheme is a tax free way of saving money for the first £20,000 per annum you invest (this is the current 2020-2021 rate).
Further Information: -> Government’s Guide to ISA’s 2021
There are different types of ISAs available on the market today (which simply stands for Individual Savings Account).
Interactive Investor is a good easy way to open a Stocks and Shares ISA – they’ve just won the Best Low Cost ISA 2021 Boring Money Award – check them out here
UK law stipulates you must, of course, pay tax on any earnings. Regardless of whether this is a result of employment, self-employment or investing. You can invest up to £20,000 per year within an ISA and not pay tax on any earnings made.
A stocks and shares ISA is one way to invest your £200 which should in theory provide returns a little better than just adding it to a regular savings account.
ISAs are usually provided by 3rd party management companies, such as banks and financial institutions and as a result with mean a management charge.
This service fee pays for the services of the investment company who will control and take care of your investment (as well as other investors) as part of a wider and larger investment portfolio.
The service fees are usually around 0.5%-0.75% of your investment, which means for a £200 investment you would pay between £1.00 and £1.50 in fees. This is generally deducted from any earnings within your account.
An initial investment of £200 with a financial investment company, who pays on average 6% per annum, after one year your investment would be worth £212.00. You would earn £12.00 income.
Although this doesn’t really sound a lot for your investment, it is considerable bigger than the 20p you would earn in a savings account. It becomes even more exciting when we look at the earnings for year two and beyond as the compound interest begins to work its magic.
After ten years your investment would have grown to £358.16. A total income of £158.16. A considerably bigger return on investment than the £2.00 in a standard savings account.
If, today, you plan to start a Stocks and Shares ISA with your initial £200 investment, could add £200 per month to your plan (so £2,400 per year) and used the same investment company with an average return of 6% per annum – what could you earn?
After ten years your investment would be worth £32,856.86. Your contribution to your investment would be £24,000 and therefore your income would be £8,856.86.
Remember rates are not guaranteed and you could end up with less money than you invested.