We’re in a dreaded sideways market. Drifting without drama, except that I can hear the faint hiss of a leak as the Slow & Steady portfolio deflates 0.33% this quarter.

If it wasn’t for having to write this update, I admit I’d be executing Operation See-No-Evil. Not even looking at the market for months, maybe years, until this glum period passes.

Passive investing is the name of the game – and it does not encourage actively urging on your portfolio from the sidelines like Ted Lasso shouting impotently at his struggling team.

Still, check-in I must.

Almost inevitably we can see it is government bonds – and property – that are holding us back this quarter:

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,200 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts tucked away in the Monevator vaults.

The Slow & Steady’s overall return after almost 13-years is 5.9% annualised. Let’s call that 3% after inflation.

Respectable, but I can’t help but wonder how many of us won’t go absolutely loopy if our portfolios continue to spin their wheels for the next several years.

How likely is that? How long will we have to wait for the gloom to lift?

Let’s see how many lost decades UK investors have endured down the years.

Lost decades

Most people’s investing fate will be dominated by their equities, not bonds. And the good news is there are few decades when stocks actually go backwards. The even better news is that the follow-on decade is often spectacular. 

The table below shows the lost decades that beset World equities, the rebound that followed, plus the year the portfolio turned positive again. (See the ‘Back in the black’ column). 

Note: returns are real annualised total returns. In other words, they show the average annual return (accounting for gains and losses), are inflation-adjusted, and include the impact of dividends.

World equities: lost decades since 1970

World equities have suffered two lost decades in the past half century:

Lost decade	Ann return (%)	+10 years (%)	Back in the black
1970-79	-5.8	11.1	1984
1999-2008	-0.9	8.5	2009

Data from MSCI, compiled by Monevator

The stagflationary ’70s were not an era for checking your stocks six times a day. Six times in the entire decade would have been too much.

But look at the 11% annualised return over the next ten years! That’s more than double the historical average of 5%. If you avoided self-destruction during the wilderness years then you were richly rewarded during the go-go 1980s.

Quite a few Monevator readers will have made their investing debuts during the next lost decade, which followed the Dotcom mania of the late ’90s. I remember colleagues frothing down the pub about their newfound riches and how “the Internet has changed everything”.

It had and it felt like it was raining money.

Then the rains failed. 

Looking back the annualised returns from 1999 to 2008 weren’t dreadful. The Noughties were a decent decade. But they were spit-roasted by the Dotcom Bust and the Global Financial Crisis (GFC). 

Thankfully confidence was restored by a V-shaped recovery from 2009. The 8.5% annualised returns scooped up over the next ten years helped establish DIY investing as online platforms proliferated.

It may be a tougher sell now though, as a portion of those gains were probably borrowed from the future via high valuations. Such frothiness may have to be paid for by several mediocre years to come.

UK equities: lost decades since 1825

What about shares here in Blighty? UK equities have only posted four lost decades in two centuries:

Lost decade	Ann return (%)	+10 years (%)	Back in the black
1907-16	-0.2	4.1	1924
1943-52	-0.06	12.4	1953
1965-74	-5.4	7.8	1975
1999-2008	-0.7	6.5	2009

Data from Rule Britannia,1 JST Macrohistory2 and FTSE Russell, compiled by Monevator

UK equities didn’t suffer a single lost decade from 1825 to 1907. Those really were the good old days.

Even with the first entry in our table, 1907 to 1914 was actually a raging bull market until World War One derailed everything. 

The following ten years were sub-par, but not terrible when you consider the Spanish Flu pandemic that killed millions and the economic depression that settled across Britain and the rest of Europe.  

World War 2 is a real eye-opener, given the scale of real-world destruction. The market recovered quickly as post-war inflation dissipated. Returns from 1953 to 1962 are the best of those following the entries in our Lost Decade tables.

Take heart

So don’t feel despondent dear reader. Clearly things have been much worse for some of our investing forebears. We’re far from lost decade territory right now.

In truth, lost decades are not that common, but long stretches of down years are. They’re not a sign that anything is broken. They may well herald that the best years in your particular investing lifetime are yet to come. 

Looking at stock market returns through this lens reminds me investing is a long-term game – and that it can feel even longer!

It can take many years of grinding before we enjoy the hoped-for rewards. 

New transactions

Every quarter we blow £1,200 onto the market dice and hope to roll a six. Our stake is split between seven funds according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out like this:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £60

Buy 0.246 units @ £244.28

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £444

Buy 0.804 units @ £552.29

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £60

Buy 0.158 units @ £378.69

Target allocation: 5%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.21%

Fund identifier: GB00B84DY642

New purchase: £96

Buy 54.201 units @ £1.77

Target allocation: 8%

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.17%

Fund identifier: GB00B5BFJG71

New purchase: £60

Buy 29.241 units @ £2.05

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £324

Buy 2.603 units @ £124.46

Target allocation: 27%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £156

Buy 150.87 units @ £1.03

Target allocation: 13%

New investment contribution = £1,200

Trading cost = £0

Take a look at our broker comparison table for your best investment account options. InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.

Average portfolio OCF = 0.16%

If this all seems too complicated check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.

Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.

Finally, learn more about why we think most people are better off choosing passive vs active investing.

Take it steady,

The Accumulator

1. Acheson G, Hickson CR, Turner JD & Ye Q (2009) Rule Britannia! British Stock market returns, 1825-1870. [↩]
2. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. [↩]

Are you wondering where you can invest a small amount of money in the UK? When money is rarer than rocking horse dung, DIY investing can feel like the sport of kings – something akin to international polo, yacht racing, or panda wrestling.

Read on to discover your best options for investing £25 per month or less using budget-friendly brokers. 

^{Disclosure: Links to platforms may be affiliate links, where we may earn a small commission. It doesn’t affect the price you pay nor how we judge the brokers.}

What’s the smallest amount of money you need to invest?

You can invest in a portfolio of ETFs from just £10 a month with InvestEngine. (Though you need £100 to open an account in the first place.)

InvestEngine’s big attraction is that your money won’t be molested by the gang of brokerage fees that usually lie in wait for unsuspecting investors. 

There are no platform charges, trading costs, or FX fees to worry about – just so long as you stick to the DIY investment service. 

Brilliantly, you can also activate the AutoInvest feature. This will automatically spread your money between your chosen ETFs in line with your asset allocation.

AutoInvest enables you to build a highly-diversified investment portfolio for a tenner using InvestEngine’s Savings Plan.

Note, the plan uses Variable Recurring Payments to tickle your bank when the money’s due. 

If your account doesn’t support open banking then you can set up a Direct Debit instead. 

In that case, the smallest amount of money you can invest with InvestEngine is £50 per month. 

There are a couple of other snags to watch out for. 

Firstly, InvestEngine doesn’t offer a SIPP account yet. SIPPs are pension accounts that typically beat a stocks and shares ISA as the best place to save for your retirement. 

Also note that a £10 a month contribution split between multiple ETFs is likely to involve purchasing fractional shares. This may lead to problems further down the line with ISA accounts. (We will attack this can of worms with our investigative tin-opener in a moment). 

Our next option avoids all that palaver…

Where to invest a small amount of money into a SIPP and/or mutual funds

Fidelity offers the best deal if you want to invest a small amount into a SIPP or use mutual funds (which heads off the fractional share dilemma). 

Fidelity’s Monthly Savings Plan enables you to invest a minimum of:

•  £20 per month into a SIPP (you should get £5 tax-relief on top, too)
•  £25 into a stocks and shares ISA or General Investment Account (GIA)

Fidelity’s platform fee is 0.35%. That’ll cost you £3.50 per year for every £1,000 invested. You can avoid trading costs by sticking to funds instead of ETFs or shares.

The minimum investment amounts above apply per fund, per month. 

So you’d need to invest £40 to £50 monthly in a two-fund portfolio. 

Happily, you can diversify in a one-er by investing in a multi-asset fund like Vanguard LifeStrategy.

Multi-asset funds bundle up multiple asset classes into a single package. This makes them an ideal way to invest a low amount of money. 

Where to invest a small amount of money into a LISA

Dodl by AJ Bell allows you to invest from £25 per month into a Lifetime ISA (also known as a LISA). 

You’ll pay a 0.15% platform fee with a minimum charge of £12 per account, no matter how small your portfolio’s balance. 

Dodl’s combo of low platform charge, flat-fee baseline, and zero trading costs means it beats Fidelity once your investments are worth more than £3,428 in any account – ISA, GIA, or SIPP. 

Dodl’s downside is its limited range of funds and ETFs. 

Other minimum investment options

Technically, Trading 212 is the place to go to invest the smallest amount of money required by any UK broker. 

It will let you stake £1 a throw with zero trading fees and no platform charges to boot. You can invest in ETFs with Trading 212, even though the emphasis is on shares and more exotic instruments. 

That said, we believe most investors are better off with a passive investing strategy built around index funds and ETFs. This is the best way by far to diversify your portfolio on a budget. 

Freetrade’s minimum trade is £2 a pop. Stick to its GIA though. Both the ISA and SIPP accounts come with sizeable annual costs attached. 

Finally, Wombat lets you invest from £10 per month. The money marsupial is even cheaper than Dodl (0.1% vs 0.15% platform fee), and also beats Fidelity when your portfolio is valued over £3,428. 

The drawback is a product range smaller than a celeb chef’s set menu. And no SIPP. 

Wherever you choose to invest, you can check out the fees for all the major UK investment platforms on our broker comparison table. 

Look out for a broker’s ‘regular investing’ option to take advantage of its minimum investment amount.

You’ll typically have to pony up more to invest occasional lump sums.

Trading 212 and Freetrade are notable exceptions. You can invest tiny ad hoc amounts with them, without committing to a monthly schedule. 

Fractional shares snag

When investing small amounts of money in the UK, watch out for the share price of your chosen vehicle. 

You won’t be able to buy in if the cost of a single share is higher than your contribution. Not unless your platform allows fractional investing. 

Fractional investing is always available for mutual funds. That makes them much simpler to trade if you’re on a budget. 

But only a handful of investment platforms offer fractional shares for individual stocks. 

And InvestEngine is the only UK broker we know of that offers ETF fractional investing. 

Happily, there are so many ETFs on the market, you’ll often be able to find a low share price option even if you’re investing £25 a month or less. (A low share price ETF is not worth less than a high share price equivalent. Don’t worry about that at all.)

Less happily, if you go down the fractional share route you should know HMRC has recently cast doubt about whether this is permissible within an ISA account. 

Fractional shares in an ISA SNAFU

HMRC has stated that fractional shares are not eligible ISA investments. 

The announcement came as a big surprise to the brokers that have been merrily offering fractional shares in ISAs – and continue to do so. 

Indeed, those platforms are sticking to their guns so far. Some are even threatening HMRC with lawyers at dawn if the taxman cracks down. 

To cut a tedious story short: the ISA vs fractional shares situation is far from resolved.

If HMRC pursues the matter then you could be liable for a capital gains and dividend income tax bill. 

True, you’d have to earn over £1,000 in dividends per tax year before you owed a penny thanks to the dividend allowance.1

Similarly, you’d have to make over £6,000 in capital gains in 2023-24 – or over £3,000 from the tax year 2024-25 – before you’re likely to get mixed up in any costly fractional share repercussions. 

In other words, you’ve got plenty of tax allowance headroom if you’re buying fractional shares for the amounts we’ve been discussing in this article. 

But we’re flagging the problem now because your investment contributions are likely to snowball as you progress through your career. 

Thankfully this ISA imbroglio does not apply to fractional investing in mutual funds. That’s because they offer fractional units and not shares.

Makes total sense, doesn’t it? 

The Pound Stretcher portfolio

Turning, then, to funds, if you’re wondering where to invest a low amount of money in terms of funds or ETFs then the simplest solution is to choose a Vanguard LifeStrategy fund. 

Because Vanguard LifeStrategy is a mutual fund, you won’t incur trading costs with any of our broker picks above. You can also invest in fractional units without any HMRC entanglements. 

As for ETFs, multi-asset ETFs are a rare beast in the UK, although BlackRock offers an ESG range. 

However my ETF preference would be to DIY diversify with a brace of index trackers that could sit at the heart of any portfolio:

ETF 1: 60% Global equity

• For example: L&G Global Equity ETF (LGGG), OCF 0.1%.
• A diversified, large- and mid-cap index tracker that represents a broad slice of the developed world equity market and can be expected to provide growth over the long term.

ETF 2: 40% UK Gilts

• For example: iShares Core UK Gilts (IGLT), OCF 0.07%.
• An intermediate UK government bond index tracker that should reduce portfolio volatility over time and diversifies against the threat of a stock market crash.  

I’ve chosen this pair of bargain basement beauties because they balance a keen Ongoing Fund Charge (OCF) with a low share price. 

But we have written about other low-cost index funds and ETFs too. 

Risk versus reward for newbies

The classic 60/40 asset allocation mix I’ve suggested above is for illustration purposes only.

If you’re just starting out, are relatively young, and have a strong risk tolerance (or are teaching the kids about investing) then you could consider a 100% equities portfolio using the global ETF only. 

Beware: an equity-only portfolio will be a much wilder proposition without the calming effect of partnering it with government bonds. 

But you may find such volatility easier to stomach when you’ve only relatively small amounts of money at stake, and plenty of years ahead to make good any losses. 

You don’t? Diversify your portfolio with a large slug of bonds if 100% equities proves too stressful. 

See our investment portfolio examples for a deeper dive into asset allocation. 

From small acorns

The power of compound interest makes it worth your while to start investing sooner rather than later, even when cash is tight.

Plus, you’ll bed in good habits, learn about portfolio management, and make your mistakes while you have less skin in the game. 

All that said, while it’s worth knowing where to invest a small amount of money in the UK, you’ll achieve your objectives faster by saving and investing more. 

But that can wait until you’re good and ready. Just get started!

Take it steady,

The Accumulator

1. Though the allowance reduces to £500 from April 2024. [↩]

What caught my eye this week.

Long-time readers will know that bankers are not good with money. They love to lend money on overpriced assets in the good times. They become fearful when stuff is actually cheap.

Some of the most terrible corporate deals of all-time were driven by bankers.

And many – perhaps the majority – of financial blow-ups occur after a useful innovation that works at a small scale on the fringes is pumped-up with banker steroids, made into a ‘product’, and then inflated until it breaks.

As for investing chops, one of my most financially successful acquaintances is a banker. And for maybe 20 years he only ever invested in bonds.

(I’m not sure what he does nowadays. I suspect his salary alone has taken him into the eight-figure club, which may be why I don’t get candid insights anymore when I happen to run into him.)

True, my acquaintance didn’t need to take equity risk, given he worked in finance and was going to make his nut from a paycheque anyway.

Except… whenever I spoke to him about investing in the stock market he used words like ‘punting’ and ‘casino’. Yet he still became a global president of some bank division or another.

He’s by all accounts (including more than one governments’) an excellent financier, so I guess he’s one of the good ones. The history of The City and Wall Street shows many others are clearly… less adept. At least assuming you think fiduciary duty should be in the job description somewhere.

Of course lots of us are slightly rubbish at our jobs. But most of us don’t still make six to seven-figures from them.

Our man inside

I admit my banker diatribe may be a little dated. Because thanks to the financial crisis, nobody really believes all bankers are rocket scientists anymore.

Outside of the US at least, most banks have been lousy investments for over a decade. Regulation put in to curb their excesses has proven that most bankers aren’t actually very good at generating profits unless they use a boatload of other people’s money to do it. They are nobody’s infallible masters of the universe these days. Except perhaps their spouses.

Indeed I even read an article in the Financial Times this week hinting that bankers themselves have gotten more realistic about their abilities.

Admittedly it was written by a banker from the world’s best bank – JP Morgan, which even I’ve occasionally invested in because it’s so classy – and as the FT writer notes, the author, Jan Loeys…

“…writes about investment strategy in a way that can sound like a subtle dig at how the other 239,999 [JP Morgan employees] choose to spend their days…”

But seriously, these strategy notes from Mr. Loeys sound like a treat.

In them he stresses that you can build a great long-term portfolio from just two asset classes – shares and bonds. Loeys also believes that most excess returns from alternative assets either never existed or have been arbitraged away.

So buy a world tracker and government bonds, he says.

Now I know what you’re thinking. Surely this guy reads Monevator?

Because he is preaching the gospel of passive investing:

The danger is that many of us tend to overrate our ability to call the market short term. It is our perception that the most successful investors over time tend to be the ones that base their decisions on what they can be quite confident about, which is generally the yield/value of an asset or asset class and its historical long-term relative performance.

Hence, a “realistic” individual investor is in our mind probably best off sticking with long-term value-based allocation and to ignore the temptation to trade the market on short-term beliefs.

The general perception that “retail” tends to buy high, after a market has rallied for some time, and sell low, after that asset class has gone through severe losses, would be consistent with many of us overrating our trading skills.

Ironic, isn’t it? Go to an egregiously-paid banker – or maybe read a blog instead (and consider becoming a Monevator member so we can make at least a healthy five-figures!)

Simply the best

Way back in 2010, Andrew Haldane, then in charge of financial stability at the Bank of England, asked if the contribution of the massively-expanded financial sector was a “miracle or a mirage”.

It’s fun to think that 13 years later, my new favourite banker can himself write:

Our industry does seem to love complexity and to abhor simplicity. The more complex the financial world is seen to be, the more managers, analysts, traders, consultants, regulators, and risk managers feel they add value and expect to be paid.

But there is a lot of benefit to the ultimate buyers of financial services and products to keep things simple.

Amen sir.

Do read the FT Alphaville piece, which includes links to Loeys’ LinkedIn videos, too.

And have a great weekend!

P.S. For those bankers among our subscribers, I didn’t mean you silly. I meant those other bankers, those ones standing over there thinking up acronyms…

[continue reading…]