You can start investing as of right now, and you can start investing with just £2000.
You should find a good investment opportunity, like stocks and shares ISA, regular ISA or even Premium Bonds.
If you haven’t invested before, you can start today. Personal pension plans have increased due to the government encouraging companies to help their employees save. These unfortunately do not provide the same levels of pension income as final salary pensions did, but these pensions are rarely available.
Investing today – for you and your family – is considerably better than investing tomorrow, much better than next month and so much better than starting next year. Timing is crucial when it comes to compound interest. The sooner you start to put money away, the more interest accumulates to grow more interest.
30 is now the age people are finally being able to save for a deposit in order to be in the position to own their first home. Equity in homes will be less in the future. In the past, many of us have relied on equity built up over a 30 or 40 year period to use as a pension at the time we reach retirement age.
Downsizing and living off the remaining proceeds will be hard for future generations.
If investing is something you are considering today, you’ll need some suggestions and options. Here are some of the ways to invest your £2000.
What should you do if you have £2000 to invest in 2021?
Several years ago, it was quite commonplace in high street banks to be able to put savings into a UK savings account and earn between 3%-6% interest. Of course the more you save the higher the interest rates were offered to you by your bank. Even a 3% interest rate today would be very welcome, a 6% rate would see people literally rushing to open new saving accounts, and would see queues longer than Next sale!
High street bank and online current accounts pay hardly any interest. The interest rates on the market today start from around 0.1% interest per year.
Yes, that means your £2000 investment on January 1st is worth, on 31st December, a disappointing £2002.00!
You would earn £2 in passive income over the first year. Compound interest is doing it’s best, there it will struggle to gain any momentum whilst incredibly low interest rates are slowing it down.
Your £2000 investment in Year 1 would be worth £2020.00 in 10 years-time. A total investment earning of just £20 in 10 years.
We will need to find more income generating ways to invest our £2000.
Stocks and Shares ISA
ISA’s are nothing new. The ISA Government scheme was designed to be a tax free way of saving money for UK residents, and applies to 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 many different types of ISAs on the market (ISA 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 income law states that you must pay income tax on any earnings outside your personal allowance. This is regardless of whether the income comes from employment, self-employment or investing. The investment cap is £20,000 per year to be held within an ISA, and this means you will not pay tax on any earnings made.
A stocks and shares ISA is one way to invest your £2000. This – in theory of course – should provide a return far better than just just putting it in to a regular savings account. Of course any investment could see a loss.
ISAs are usually managed by a 3rd party management company. These financial institutions include banks and other finance organisations and they make their money by managing your investment within a larger portfolio.
This service fee that pays for the services of the portfolio manager within an investment company. Their job is to manage and look after =your investment (as well as other investors) as part of a wider and larger investment portfolio.
Typically these service fees are often around 0.5%-0.75% of your investment. The service fees for a £2000 investment you equal between £10.00 and £15.00 in fees. This is usually deducted from earnings within your ISA account.
An investment of £2000 with a ISA management company, who manage to earn for you an average of 6% per annum, means after one year your investment would be worth £2,120.00. This means a £120.00 investment income.
It may not sound a lot of return for your investment but it is much bigger than the £2 you would earn in a regular high street bank savings account. When though we look at income for the second year and beyond, things become even more exciting. This is the point when the magic of compound interest is noticed.
After ten years your investment would be equal to £3,581.69. A total income of £1,581.69. Now compare this to the £2.00 income you would have collected in a savings account!
Let’s take this one step further. If you plan to start a Stocks and Shares ISA today with your initial £2000 investment, and were able to add a further £2000 per month for nine months to your plan (so the maximum of £20,000 per year) and managed to achieve the same average return of 6% per annum – what could you earn?
After ten years your investment would be worth £270,680.76. Your contribution to your investment would be £200,000 and therefore your income would be £70,680.76.