There is a common misconception that to start an investment portfolio you need thousands and a huge bankroll. This certainly helps, but at the same time, having lots of funds at your disposal is a sure-fire way to lose them too!
On the contrary, it is quite possible to invest and create a portfolio with small amounts. You just need to use your money wisely and not make any rash financial decisions. You also need to understand the different types of investments available, and what disposable income you have available.
If you are looking to make a little extra cash and build for your future, we describe three simple steps you can take to assess how much money you need to build an investment portfolio safely.
Step 1 – Establishing a budget and stabilizing your finances
Before you even look at the different options such as spread betting vs CFD trading, you need to make sure your own finances are in order. This is imperative and you can’t hope to see how much money you have available to build a portfolio without doing this.
The simplest way to do this is to create a budget. This could be something simple like a jotted budget in a notepad, or you could use software such as Microsoft Excel to create a spreadsheet. The main premise is that you list all your incomings and outgoings.
This should include all your bills and expenses, such as insurance, rent and phone bills, against your income such as your wages from employment. Try and make it as detailed as possible because the aim is to show how much disposable income you have available per month for investment.
Step 2 – Determining what excess money and savings you have
With a budget established, you should have a clear idea of how much disposable income you have per month. This is a fantastic starting point in establishing your portfolio limits and how much you can realistically spend on investments.
The truth is, depending on the platform and type of investment, you can start building a portfolio with virtually nothing. Anyone can buy shares in a company, trade using a CFD app on their smartphone or create a cash ISA with their bank.
You don’t need thousands — you just need some disposable income to start with. Always make sure you consider current economic trends too, so you can account for potential price increases from things like the government budget.
Step 3 – Understanding the different types of investments
You now know exactly how much disposable income you have to build a portfolio with, and this is really the main crux of the discussion.
However, it’s a great idea to understand how you can build a portfolio and what markets you can invest in. The following are some of the main types of investments:
- Stocks and shares
- Savings accounts
Forex trading is buying and selling foreign currency and making a profit from the differences in currency prices. This can be incredibly lucrative, but it does take time and effort to master. Nonetheless, you can build a portfolio with a relatively small amount, but it may take a while to create substantial amounts.
Stocks and shares offer a more long-term investment and again you can create a portfolio with small amounts. For example, you could buy shares in Apple and simply leave them as a long-term investment to hopefully sell again when the prices increase.
Cryptocurrency can be volatile as the prices are shifting continually, but it is also a great area where you can build a portfolio with a small amount. It is not uncommon for prices to skyrocket, and you could turn hundreds into thousands.
Lastly, savings accounts such as a cash ISA are some of the most stable investments and you could simply pay into one of these monthly. The returns aren’t great and interest rates are currently relatively low, but they are essentially no-risk investments.
You don’t need to be a millionaire to build an investment portfolio
As you can see, you can start small and work your way up to a much larger investment portfolio. You don’t need thousands to start investing. You just need to use what money you have wisely and make sound financial decisions.
The first step is to look at your finances and ensure that you have your budget and bills accounted for. After that, you can look to start building a portfolio and steadily increase the amount you invest as your portfolio grows.