How to invest £50 a month: tips for people at different ages

Thinking about investing? There are compelling reasons for moving at least some of your money away from standard savings accounts and into the stock market. There are also risks, but over the long term the rewards can be better. Many people are put off by the idea that you need to be wealthy to start investing, or over a certain age. But even if you can only afford to set aside £50 a month, it is worth considering. And while there are important factors to consider before you start, it is rarely too early, or too late, to take the first step. For most people, choosing funds will be a better option than buying shares (also known as equities or stocks) in an individual company. Funds let you spread your risk, and give the job of buying and selling shares to a fund manager. We asked some experts for tips on where to invest £50 a month at different life stages. Before you start If you haven’t already, it is worth building up an emergency fund that would cover three to six months of essential outgoings that you can easily access in case of unexpected costs. After that, consider your investment goal, the time horizon you are looking at, your appetite for risk and the level of return you are ideally looking for, says Russ Mould, the investment director at the platform AJ Bell. This should help you decide on things such as the most suitable “asset classes” (the types of investment your money goes into) and which company to invest through. Before we go on, it is worth stressing that while your age is useful to consider when investing, it should not be the only factor in your decision-making. “Age can be a useful rule of thumb, but it’s ultimately the timeframe for needing the money – and the investor’s tolerance for volatility – that should determine how much risk to take and what types of funds to use,” says Jason Hollands, managing director at the platform Bestinvest by Evelyn Partners. In your 20s Your 20s can be a volatile time as you start your career and figure out your life goals, so it is vital to build up cash savings. For these, consider an instant-access cash Isa. Daniel Hough, director and wealth manager at RBC Brewin Dolphin, warns that cash kept for a long period will be eroded by inflation over time. He says that if you think you might need to access your money within three to five years, you could invest in a “cautious” fund via a stocks and shares Isa – but growth potential may be lower and you could lose money, depending on investment performance and market conditions. Younger investors can benefit from time in the market and may consider a growth portfolio, such as the Evelyn Smart Growth Fund, with at least two-thirds invested in shares, according to Hollands. He says people should not target a specific return as that is “impossible to deliver consistently”, but they should aim for at least 2.5% above inflation (and more than that for a high-risk portfolio). View image in fullscreen Someone planning to buy a house in five years’ time may have a low appetite for risk. Photograph: Yui Mok/PA You should use your goals to determine your appetite for risk. For example, someone in their 20s who is saving for their retirement may have a higher risk appetite than someone in that age group who is planning to buy a house in five years’ time, says Dan Coatsworth, head of markets at AJ Bell. One option is a ready-made portfolio that fits with your risk appetite. These are offered by lots of investment apps and websites, and they invest in managed funds that are “rebalanced” (adjusted) regularly. As you get nearer to your goal, you should consider lowering your investment risk. Alternatively, someone with a higher risk appetite might consider a global equity tracker fund for their £50 monthly investment, “as that would give them diverse exposure to different sectors and geographies”, says Coatsworth. Among the most popular global tracker funds with AJ Bell customers in April this year were the Fidelity Index World Fund and HSBC FTSE All World Index Fund, with ongoing charges of 0.12% and 0.13% respectively. While Hollands agrees that an index tracker or global equity fund are options, he warns that “a high-risk equity-heavy strategy could backfire” over a short period. A “multi-asset fund” – which combines various investments such as shares, bonds, property, cash and alternative assets such as gold – may be more appropriate. Those not wanting full exposure to the stock market may want to consider Vanguard’s popular LifeStrategy range of funds. Each of these has a different mix of shares and bonds – for example, one puts just 20% of people’s money into shares and 80% into bonds, while another invests all the money in shares. Bonds are issued by governments and companies that want to borrow money from investors in exchange for a fixed interest rate. Meanwhile, for investors with shorter-term or medium-term goals, Hollands says that Personal Assets Trust, a large British investment trust, may be worth considering