When I ask people whether they invest in stocks or not, one of the most common objections is that they don’t have enough money or are simply not rich enough to start investing in the stock market.

You do not need to be rich to invest in stocks. Any adult can start investing in stocks via low-cost index funds from as little as £5 per month. Even if you don’t have much to invest, the important thing is establishing the investing habit and letting your money grow over time.

Whilst I empathise with those who truly don’t have the disposable income spare to invest in the stock market, for most people, this is a faulty rationalisation designed to let themselves off the hook of learning and implementing an investing plan. Unfortunately, an unwillingness to invest makes it very difficult to accumulate any real wealth over time.

Do you need to be rich to invest in stocks?

To be clear, you don’t need to be rich to invest in stocks.

If you, or someone you know, has ever said something along the lines of “don’t you need to be rich to invest in stocks?” or “no way I have enough money to start investing!” you’re almost certainly operating off faulty beliefs about what investing actually is.

I can see where these types of comments may have come from. In TV and popular culture, we associate the stock market with the rich and picture complex charts and graphs on some ridiculous trading setup.

The reality is very different. Anybody can learn what investing is, set up an account and automate investing on a monthly basis with whatever amount they’re comfortable with all in less than a few hours.

The stock market (also sometimes referred to as ‘equities’, ‘stocks’ or just ‘the market’) is the greatest tool at our disposal for building wealth. Another faulty belief is that investing in stocks is risky but again, the reality just doesn’t support this.

Across history, the global stock market has had an average annual return of close to 10%. Meanwhile, holding your money in a bank account is often thought of as safe but the truth is this money will be slowly eaten away by the power of inflation (your cash has less worth as the prices of goods and services increase over time).

Invest in stocks

How much do you need to start investing in stocks?

On most investing platforms, you can start by investing as little as £5 per month. Whilst it may seem pointless to invest a small amount like this, establishing a monthly investing habit and allowing your money to grow and compound over time is a crucial first step to becoming a successful investor.

For those living in truly difficult financial situations, this may not be possible. However, for the overwhelming majority of people, the old excuse that you don’t have enough money to invest is just that, an excuse.

I struggle to believe most people couldn’t free up £5 somewhere in their budget to allocate to investing, whether that be cutting down on takeaway food, an unused subscription or on a pint at the pub.

Some may believe that investing just £5 a month won’t change anything for their financial situation and in the short term that’s true. However, there are two big reasons why investing even a small amount is worth it.

Let’s say you’re 25 years old and have committed to investing £5 per month from here on.

If you left this money in cash, at retirement age (65) this money would be worth £5 * 12 months * 40 years = £2,400.

If however, you invested this same amount monthly in a low-cost index fund, this money would be worth £31,238 by age 65 assuming 10% returns a year.

This should make it clear the power regular investing over a long period of time can have, even if you aren’t able to contribute much.

The importance of establishing the investing habit shouldn’t be overlooked either. Sure you may only be able to spare £5 or £10 per month to invest now, but what if your salary increases in the future and you can afford to invest £100 a month? If you start today, you have the automated investing plan established and it will simply be a case of changing how much you contribute each month.

I don’t have much money, how should I start investing in stocks?

When starting to invest, the most effective strategy is to invest in low-cost, passive index funds using a reliable platform like Vanguard. This strategy has low fees, is simple to set up, allows for monthly automation and has historically achieved returns of around 10% per year.

To get started, check out my guide on how to start investing into an ISA in the UK with Vanguard which will walk you through the necessary steps. By following this guide, you will be set up and ready to invest within the hour with your financial future looking much brighter already.

When it comes to investing, there are multiple asset classes to consider such as stocks, bonds, cash and real estate. For the purpose of this post, we are only discussing stocks which, in my opinion, are the most effective asset class for generating wealth over time.

There are various ways to invest in the stock market, whether that be in individual stocks like Apple or Facebook, in actively managed mutual funds or via low-cost index funds which simply track an index like the FTSE100 or the S&P500 (500 of the largest stocks in the US).

My preference is investing in index funds, as these aren’t aiming to “beat the market” they are very cheap, usually charging just 0.1%-0.2% of invested assets. The reality is very few active managers can beat the market over time and will typically charge a much higher fee (1%+).

Is the stock market the most effective way to get rich?

For most people, the stock market is the most effective tool to build wealth over time. Whilst some people get wealthy through cryptocurrency or property investments, the stock market is a much more reliable, time-tested means of wealth creation if common pitfalls are avoided.

If you spoke to 100 millionaires, my guess is all of them would use the stock market as a major part of their investing strategy. As you begin to invest, you’ll likely hear some stories about a friend who got rich investing in a crypto coin or on a particular stock and it will take some willpower to avoid this shiny object syndrome.

When it comes to investing, failure usually comes down to two common human emotional traps – fear and greed. Many investors will get scared when their portfolio starts to fall and will sell, locking in the loss. Others will be greedy when they see a stock rising and become overconfident only to get stung when they realise they bought in near the top.

Both of these pitfalls can be avoided by automated, monthly investing in index funds alongside the iron will of not getting scared when your portfolio goes down during the inevitable negative fluctuations of the stock market.

Should I invest in funds or individual stocks?

For beginner investors, the priority should be investing in well-diversified, low-cost funds rather than individual stocks. It’s very unlikely a rookie investor will be able to pick high performing stocks with any real accuracy or longevity and will almost certainly perform worse than the market.

Whilst picking stocks may seem more fun or you, for some reason, think you may have the special touch when it comes to picking winners, the better course of action for 99% of investors is simply to go with a global or S&P500 tracking fund.

Deciding whether to invest in individual stocks or funds is a choice between whether you want your portfolio to be diversified or “have all your eggs in one basket”.

Let’s say you choose to invest your entire portfolio in one Company, e.g. American Airlines. What happens if something happens to that Company like a pandemic grounds the majority of their flights and they are unable to produce any real revenue?

If the stock price of that one Company tanks, so does your whole portfolio. To me, that strategy seems way too risky to bet your future financial freedom on.

Imagine if instead, you had invested in an index fund that tracks the S&P500. This index would still include stock in American Airlines, but if the stock price in that one Company fell, this would only make up roughly 1/500th or 0.2% of your portfolio, so wouldn’t be as noticeable.

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Investing in the stock market doesn’t look like this!

How often should you invest in stocks?

You should invest in the stock market on a consistent monthly basis. This allows investors to benefit from dollar-cost-averaging and to automatically send a proportion of your monthly paycheck to your investment account which is sometimes referred to as “paying yourself first”.

For more on dollar-cost-averaging, check out my post titled Pound cost averaging: what is it and does it lead to higher returns?

As alluded to above, whilst investing in the stock market to any extent is beneficial, for optimal results, you want to establish a consistent, automated habit of investing which will serve you well over your financial life.

Will I lose all my money by investing in stocks?

It’s highly unlikely you will lose all your money investing in stocks provided you make sensible choices like investing in diversified index funds. In this situation, you are far more likely to make substantial money. Those who do lose big in the stock market, tend to take on high-risk positions.

The belief that you will end up losing all of your money in the stock market is based on emotion, not reason or logic. Human’s are by nature loss averse which means the prospect of losing £1,000 feels a lot worse than gaining £1,000 would feel good.

Ironically, those afraid of investing in a tool as valuable as the stock market tend to be the people who should be investing the most.

Do people ever lose all or a lot of their money in the stock market? Yes. But most of these people are betting everything on one stock or performing the fool’s errand of trying to “time the market”.

History tells us that over time, the stock market increases in value but fluctuates wildly along the way. Some years will have a positive 10% return, some years 2% and others -15% but the important thing is that it goes up on average over time.

Due to this, a common mistake investors make is that they sell their stocks on a downswing rationalising that “if I sell now, it can’t lose any more value!”.

However, this act only ‘locks in the loss’. If you hold firm and don’t sell, you will still own the same number of units in the fund and over time, the value will recover.

If a friend or a family member ever tries to convince you investing in stocks is too risky, ask them what the average return for the S&P 500 is for the past 10, 50 or 100 years. Chances are they won’t have a clue, so they’re talking from an uninformed position.

To summarise, it’s very, very unlikely you’ll lose all your money in the stock market if you remember to diversify (by investing in index funds) and avoid selling when the market is down.

Do I need to hire someone to help me invest in stocks?

Most investors do not need to hire a financial advisor to help them invest. Unless you are a high net-worth individual or have a particularly complex issue, it is easier, cheaper and likely more fruitful to invest by yourself using a do-it-yourself platform like Vanguard or Hargreaves Lansdown.

Whilst there are many professional, honest financial advisors out there, there are also plenty of grifters. Even if you do manage to find a good financial advisor, due to their high fees, they will likely need to earn market returns of in excess of 12% a year to beat a low-cost index fund.

As alluded to above, very few people are capable of beating the market consistently over time so it seems unlikely to me that the average advisor can help you achieve these sorts of returns.

Clearly, there are exceptions to this. Once your invested assets reach a certain level, it is prudent to hire an advisor who can assist with complex issues like efficient tax and estate planning. For beginners though, do your research and go it alone – it’s far less complex than most would have you believe.

How can I automate investing so I don’t have to think about it each month?

To automate your investing, simply set up an account at a well-regarded investment platform like Vanguard and initiate a monthly instruction to purchase units in your chosen fund. Meanwhile, set up a direct debit from your bank account to your investment account to fund this monthly purchase.

Once you’re set up on an investment platform, creating a monthly investing instruction with whatever amount you’re comfortable with and initiating a direct debit from your bank account should be a simple process.

For me, I have a monthly investing instruction set up for the 4th of every month because I know I will have been paid by my employer by this date and the cash will have cleared to my bank account.

By doing this, I make sure I invest a proportion of my income first so I don’t have that money to spend elsewhere and ensure I am consistent with my investing which allows compounding to work its magic over time.

Do you have to be rich to invest in Bitcoin?

You do not have to be rich to invest in Bitcoin. Whilst 1 Bitcoin is worth thousands of pounds, it is possible to invest in a fraction of a Bitcoin which means you can start investing in Bitcoin (or any cryptocurrency) from as little as a few pounds per month.

Whilst I personally hold some cryptocurrency, I don’t consider it a central part of my portfolio and would advise finding a specialist Crypto resource for guidance on how to invest in this asset class.

As always, please remember I am an Accountant, but not your Accountant. In this post (and all of my others) I share information and oftentimes give anecdotes about what has worked well for me. However, I do not know your personal financial situation and so do not offer individual financial advice. If you are unsure of a particular financial subject, please hire a qualified financial advisor to guide you.

This article has been written by Luke Girling, ACA – a qualified Accountant and personal finance enthusiast in the UK. Please visit my About page for more information. To verify my ACA credentials – please search for my name at the ICAEW member finder. Please comment below or contact me here to get in touch with questions or ideas for future posts.