In uncertain economic waters, the idea of having enough money to start an investment portfolio may sound rather far-fetched. But despite the daunting, grandiose and often technical sound of it as an idea – conjuring up images of hordes of buy-to-let properties, top japanese etfs and bitcoin mining – setting up a personal portfolio is much easier than you may think – and it pays. Unless you have a sizeable amount to invest you don’t need to go via brokerage services – you can start investing from the comfort of your sofa. And with returns on traditional savings account quite low, setting up a medium-risk, balanced portfolio is a better way to see your savings grow. But where do you begin?
Your First Investment
Contrary to popular perception, you don’t need heaps of savings to begin. £1000 can be a suitable entry point, with a regular monthly contribution of £100-£200. If you don’t currently have that initial sum, take the first step of reviewing your budget and perhaps signing up to a budgeting app to see where you can make small cutbacks – shopping, entertainment and food are often great places to start.
Have a Plan
Before you move any money, you need to have a plan with clear aims for the outcome of your savings goals. Is it a house deposit? Paying for the children to go to university? Ensuring a comfortable retirement? Having a tangible outcome makes all the difference. An Investment Policy Statement is a great place to organise these aims. In turn, this will set the amount of return you need to generate, and how soon you’ll need it by. It will also cover your tolerance for risk. If the money will be needed in the short-to-medium term, say for the house deposit, you should steer clear of more volatile investments that offer higher rewards for higher risk, as you may find yourself needing to liquidize assets at an inconvenient dip in the market. If you can play the longer game, say working towards a sum for retirement, then you can stand a little more risk, as fluctuations will tend to correct themselves and balance out over time. In general, most successful portfolios contain a mix of risk ratings to create an overall harmony.
Then comes time to put in some research on the investment vehicles that best suit your personal aims. Look into low-budget suitable options such as Exchange Traded Funds, where you only have to make a minimum purchase of one share. Or look to find a ‘pre-mixed’ fund where you can buy in for a specified low threshold or opt for minimum monthly automatic contributions. The funds contained will be selected for you and generally contain a mix of bonds and stocks. Index funds are those pre-edited but not actively managed by a trader- a study done by Standard and Poor concluded that these types of ‘passive’ funds outperformed actively managed ones which require a higher buy-in! Once you are all set up, Review your plan either on an annual basis or as life circumstances change – you get married or divorced, or you have a child or are made redundant or purchase a home.