Video transcript

Hello, I’m Charlene Young, and you’re watching AJ Bell’s video series on getting started with investing.

If you’ve seen the previous episodes, you should now be clued up on the different types of accounts, the options for where you can invest, and the importance of having a clear goal for why you want to put money to work in the markets.

The next step is to get your head around how much money you can afford to invest and why you need to be aware of charges and the impact they have on returns.

There isn’t a right or wrong answer with regards to how much you should invest - it’s down to how much you can afford. But the earlier you start investing, the better.

Before you start putting money away into an investment account, first make sure your finances are in order. It’s very important to pay off any expensive debt first. I’m talking about personal loans or credit card where the rate of interest is high - such as in double-digits.

It’s also worth building up a pot of cash to cover emergencies like your boiler or car breaking down.

If you get these issues sorted, you’ll be in a much stronger position to start putting money away into an investment account.

However, it’s worth noting that if you are employed by someone, it’s highly likely that you are already investing in the market, even if you don’t realise it.

All employers must provide a workplace pension as part of a scheme called ‘auto-enrolment’. If you’re classed as a worker, aged between 22 and state pension age, earn at least £10,000 per year and usually work in the UK, you’ll be automatically signed up to the scheme.

Currently, your employer will pay at least 3% of your salary into the pension and you pay 5% as a minimum. Many people like to make additional contributions to their workplace pension or other investment accounts.

There is nothing to stop you from paying into an ISA or another type of investment account alongside a workplace pension.

You can either deposit a lump sum or pay in whenever you have spare cash. Lots of people like to do little and often, such as a direct debit for £300 a month. These sums can really add up over time.

I’ll give you an example. Let’s say someone puts £300 a month into their ISA for three years. Each year they achieve 4.5% investment growth and incur 0.75% charges. After three years their ISA would be worth £11,400, which is fantastic.

It's important to understand the full range of charges when you come to invest so you can factor them into your budgeting. In a nutshell, you pay to buy and sell stocks, funds or bonds. That’s called a dealing charge. You also pay a custody charge which is essentially an account fee to your platform provider for holding your investments. Stamp duty is payable on some UK and Irish shares, while you also have a foreign exchange charge when buying non-UK shares.

If you can only afford a small amount each time, remember to consider the impact of charges. For example, you buy £25 worth of shares, it would cost you £5 in dealing charges per trade if you did this yourself each time. This represents a big chunk of the overall investment, so it might be worth looking at alternative options.

If you still wanted to buy shares, you could set up a regular investment instruction to automatically invest £25 on the same day each month, which would cost £1.50 each time. It also happens automatically so you don’t need to set a reminder. Or investing in funds only cost £1.50 per trade. You might also consider using Dodl by AJ Bell, an investment app where you’ll pay one all-in charge per account of 0.15% of the value of your investments per year, or a minimum of £1 per month. It’s worth noting that Dodl has a more limited range of investments compared to AJ Bell’s main platform.

I hope you’ve enjoyed the video series so far and don’t miss the next one where we will explain how to build an investment portfolio. Thanks for watching.