Equity Funds Are Possibly the Smartest Way to Invest £500 per Month in 2020

Equity Funds Are Possibly the Smartest Way to Invest £500 per Month in 2020
Written by:
Robert Bell
April 3, 2020
  • Saving money each month lowers stock market volatility by allowing you to buy at different prices
  • It is possibl toi invest by industry or region when you choose an equity fund
  • Avoid poor bank interest ates and make your money work harder during the year

2020 could be the year in which you make the profitable investments that you have always wanted to. If you can put away £500 each month for the next year, this gives you an excellent basis for starting to build up serious funds. Take a look at how you should use this money.

Avoid Stuffing Your Bank Account

The low interest rates on offer just now mean that leaving a lot of money in a bank account just doesn’t make sense. If you were to end the year with the full £6,000 sitting in your account, it would only have earned a paltry amount of interest.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

Having said that, it is important to leave enough money in an instant access account for emergencies. This means that you shouldn’t over-stretch in terms of the amount that you invest each month.

By carrying out a thorough analysis of your accounts, you will see whether £500 is a sensible amount to invest. Bear in mind that if you attempt to put away too much too soon, this raises the risk of having to abandon the entire scheme.

Start a Regular Saving Plan for a Stock Market Equity Fund

There are many different ways to invest money on a recurring basis. However, a lot of them are designed for small amounts of cash. Once you are able to invest £500 each month, you simply can’t afford to ignore the option of the stock market.

Of course, investing in shares give a type of investment that is notoriously volatile. Yet, doing this through monthly payments decreases the risk of volatility to some degree. This is because you will be buying shares each month at different prices, as the market rises or falls. You aren’t putting everything onto a certain stock at a certain point in time.

This approach also gives you the flexibility of choosing some steady, blue chip share with strong dividends, together with up and coming shares that may provide you with bigger earning potential.

If you don’t have the time or expertise to choose your own stocks, you can use a service that does this for you. An investment fund that covers a range of shares is generally the best choice to ensure that you get a mixture in your portfolio and spread the risk. This is often called an equity fund.

This kind of stock market plan is most recommended for someone who plans to keep investing in it for 5 years or more. If you aren’t sure whether you will keep it going for more than the initial year, be sure to check the terms and conditions to see if you can end the plan at that time.

How Much Can You Earn?

It is impossible to be certain at the outset how much you will earn in this way. It depends on the initial choices that you make and then on the market conditions throughout the year.

If you choose an equity fund, you will be provided with their historic performance details, as well as some information on what the fund managers expect from the future. However, there is no guarantee that previous performance levels will be maintained or that predictions will come true.

Look for a fund that shows genuine promise. This may be based on an emerging industry or on a region that is expected to perform particularly well in the next year. You can’t know for sure what will happen, but you can try your best to get informed.

Current predictions for the stock market in 2020 range widely, but the overall feeling is of modest optimism. 2019 was a fantastic year for investors, with the S&P 500 gaining over 28% in the 12 months just ended. Technology stocks also performed strongly.

The FTSE 100 had a 12% increase over 2019, which saw it lag behind the global stocks increase of 24%. If 2020 is anywhere near as good as this, your £500 monthly investment should grow very nicely by the time we are celebrating the start of 2021.