It can feel daunting to take the first steps in your investing journey. But, the best way to learn how to build a low-cost portfolio, is by trying it for yourself and figuring out what feels comfortable to you. You might think that investing is only for high earners and knowledge-savvy financial professionals, but that’s not true.
In this guide, we’ll show you how you can get started with just £100, and how you can keep costs down with our low fees on InvestEngine.
What is an ETF?
First, what even is an ETF? ETF stands for exchange-traded fund. Like stocks or bonds, ETFs are a type of investment, or ‘asset’ that you can buy and sell. This is done with the goal of making your money grow over the long-term.
However, where stocks will represent individual companies, ETFs often group together a bunch of different companies into one neat ‘fund’. An ETF can hold hundreds or even thousands of different companies and bonds, with each ETF grouping by theme, geographical location, size of the company etc.
Why should you start investing with £100?
Many people think you need a lump sum of thousands to start investing. In reality, just £100 is enough to get going and build a low-cost portfolio.
Think about your monthly spend – do you regularly splash your cash on retail therapy, forgotten subscriptions, or Friday night takeaways? It’s a good starting point to figure out where your unnecessary spend is, and put that spare money to work in your investments.
With investing, it’s important to remember that the value of your money can go up or down. So, it’s understandable if you’re not fully confident from the outset. This is where our unique features on InvestEngine can help you to build a balanced portfolio:
- Fractional investing: Own part of an ETF for as little as £1, there’s no need to buy whole shares (which can often be expensive)
- Commission-free trades: On our platform, we don’t charge dealing fees when you buy or sell ETFs
- Automated features: Regular investing tools can help you keep your investments on track and allow you to “set-and-forget”.
Starting small helps you get comfortable with investing, and you can always add more over time.
Step one: choose your account type
Before you build your portfolio, decide what type of account you want:
- Stocks & Shares ISA: Invest up to £20,000 per tax-year and pay no tax on the returns or dividends.
- Self-invested personal pension (SIPP): Invest for retirement, with tax relief contributions from the government. For most people, you can contribute a maximum of 100% of your annual earnings, but is capped by the £60,000 annual allowance.
- General investment account (GIA): There’s no limit on how much you can invest but all interest earned is subject to Capital Gains Tax.
- Business accounts: Invest surplus cash from your company.
Each option has different tax benefits and depends on your personal circumstances (tax treatment), so consider your goals before choosing. If you’ve stumbled upon this guide, you’re likely a new investor looking to build a low-cost portfolio in a Stocks & Shares ISA.
Step two: decide your approach
At InvestEngine, we specialise in helping you build a DIY portfolio. These allow you to hand-pick your ETFs to match your preferences, areas of interest and risk tolerance.
With hundreds of great-value, hand-picked ETFs available, you can tailor your investments to cover cover a wide range of stock markets, bonds and commodities - including ESG and thematic choices.
Step three: build diversification with ETFs
Diversification is one of the first words you’ll hear in long-term investing. Diversification means spreading your money across different investments, so you’re not relying on one company or sector.
With fractional investing, you can buy a piece of an ETF at a price that’s affordable to you. With £100, you can easily buy a piece of multiple ETFs with one click, to ensure that your portfolio is well diversified. But what should your portfolio mix look like?
While we can’t tell you exactly what you should invest in, consider these key asset classes:
- Equities: Shares in a company, which means you (indirectly) own a small part of it. Their value can go up and down and they’re usually a touch more risky.
- Bonds: Loans you give to a government or company. In return, you get regular interest payments and your money back at the end of the term. They’re usually lower risk because the payments are more predictable.
- Commodities: Investments based on physical goods like gold, silver, oil or raw materials. You can invest in them through ETFs that track specific sectors like mining. Their prices can still rise or fall, but they can help protect your portfolio during inflation or economic uncertainty.
Read this guide for more information on how to build a portfolio. Consider your risk tolerance and time horizon to help you decide if you’re a cautious investor, balanced investor or a growth-focussed investor.
Step four: keep portfolio costs low
High fees can eat away at long-term returns. By cutting these out, you keep more of your money invested and benefit from any potential compound interest.
Compound interest is the theory that returns then begin to generate returns of their own over time, creating a snowball effect. It’s a powerful force in finance, and investing earlier gives you more time to take advantage of it.
InvestEngine keeps costs down by charging no platform or dealing fees for DIY portfolios. For context, many traditional investment platforms charge dealing fees on every trade or annual account fees.
ETF costs do apply in general. Our platform offers low-cost ETFs for your portfolio, with ongoing charges typically between 0.03% and 0.25%.
Try your hand at our fee calculator which will show you how much you could save on fees when you invest with InvestEngine, compared to another provider.
Step five: automate your investing
Investing isn’t a one-off activity, regular contributions are the key to building long-term wealth. We have plenty of handy tools to help you set your strategy and then forget about agonising over your investments:
- Set up a Savings Plan: Invest from just £20 a month.
- Use AutoInvest: Ensures every pound is invested according to your chosen allocations.
- Rebalance in one click: Keeps your portfolio aligned with your strategy.
Automation removes the guesswork and discipline challenges that often trip up investors, and can help you follow a pound-cost averaging strategy.
Pound-cost averaging means spreading your investments out over time. Rather than investing one large lump sum all at once, it’s the process of regularly investing smaller chunks with the aim of smoothing out the effects of market volatility.
Key takeaways for building a low-cost portfolio
- You can start investing with as little as £100.
- Fractional ETFs make diversification possible on a small budget.
- Keeping fees low means more money working for you.
- Automation helps you stay on track with regular investing.
With InvestEngine, building a low-cost ETF portfolio is straightforward, accessible, and designed to grow with you.
FAQs on how to build a low-cost ETF portfolio
1. Can I start investing in ETFs with just £100? Yes. With fractional investing, you can buy parts of ETFs from as little as £1. This means a £100 deposit is enough to build a diversified portfolio without needing to buy full ETF units.
2. What is the cheapest way to invest in ETFs in the UK? The cheapest way is through a commission-free platform like InvestEngine. There are no dealing or platform fees for DIY portfolios, and ETF costs are low.
3. How do fractional ETFs work? Fractional ETFs let you own a slice of a fund instead of a whole share. For example, if one ETF unit costs £200, you could invest £20 and hold 0.1 of a unit. This makes diversification possible even with small amounts of money.
4. What type of account should I use to invest £100? You can choose between a Stocks & Shares ISA, a SIPP, a GIA or a Business account. Your choice depends on your goals and tax situation. Typically, a first-time investor will opt for a Stocks & Shares ISA.
5. How can I diversify an ETF portfolio with only £100? With fractional investing, you can split £100 across multiple ETFs. For example in a global equities ETF, a bond ETF, a UK equities ETF and a commodity ETF. The exact split will depend on your risk tolerance.
6. What are the risks of starting with £100 in ETFs? All investments carry risk. The value of ETFs can go up or down, and you may get back less than you put in. Diversifying across ETFs and investing for the long term helps reduce, but not remove, this risk.
7. Is it better to invest my money all at once or set up a regular plan? Both work. A lump sum gets your money working immediately. Regular contributions through a Savings Plan help smooth out market ups and downs, a strategy known as pound-cost averaging.
8. How can I keep ETF investing costs as low as possible? Choose commission-free platforms, pick ETFs with low ongoing charges (below 0.25%), and avoid unnecessary trading. Lower costs mean more of your money stays invested and can benefit from potential compounding.
9. What is a DIY portfolio on InvestEngine? A DIY portfolio allows you to hand-pick your ETFs to match your preferences, areas of interest and risk tolerance.
10. How can I grow my £100 ETF portfolio over time? You can grow it by setting up automated contributions from as little as £20 a week, reinvesting dividends and staying invested long term to benefit from the compounding effect.
Important information
Capital at risk. The value of your investments can go down as well as up, and you may get back less than you put in. Tax treatment depends on individual circumstances and is subject to change. ETF costs also apply. This content is for information only and is not financial advice.