What is the minimum amount needed to invest in shares?


Ever since I was a child, stock market investing has been of interest to me. I don’t know if it’s all those complicated yet intriguing charts or whether it’s the potential for financial gain but whatever it is, I have always found the financial markets to be fascinating. When I was younger – and earning a lot less money – I wanted to get involved in share trading but due to my lower income I really didn’t have all that much cash to spare, which doesn’t bode well when you’re looking to invest. So what is the minimum amount of money you need in order to invest in shares? Let’s answer this question and also look at whether it’s worth investing in shares with only a small amount of cash.

Can I buy shares with only a small amount of money?

The simple answer to this question is yes, you can invest in shares with only a small amount of money. In fact, there really isn’t a set minimum amount of money needed in order to invest in shares. If you have £1 to invest for example and you have your eye on a stock which is priced at £1 per share then you can open an account with a reputable online broker and buy that share, just so long as you are buying at least one full share and that you can also afford to pay any associated fees and taxes. It’s worth taking a moment to consider these costs because when these extra fees and taxes are taken into consideration, it can seriously influence your decision as to whether it is worth investing in shares with only small amounts of money, as these fees can seriously eat into any gains you may make. So, what are these other costs? They are known as trading fees, stamp duty and capital gains tax.

Tip – If you only have a little money to invest then a lot of the following fees can be avoided by investing through a robo-advisor. Many have no minimum investment amount and invest your money into low-cost funds called ETFs.

Trading Fees

Trading fees will be charged each time you buy or sell any given number of shares. Charges will vary depending upon which online broker you use but costs usually range somewhere between £4.95 and £14.95 per trade. Discounts on trading fees are usually available for frequent traders and some brokers may also charge monthly or annual fees to maintain the account and there may even be extra charges for account inactivity. The dealing fee is usually a flat charge and therefore stays the same whether you are buying just 1 share or 1000 shares. This is why buying small amounts of shares can sometimes be a little counterproductive, as the trading fees may far outweigh any potential gains made if the shares do rise in value. Let’s consider an example.

Let’s say that your online broker charges a trading fee of £10 per deal. If you are buying shares with the hope of some short term capital growth then you will have to make 2 trades in order to realise any profit made, as you will not only have to pay a £10 trading fee to buy the shares but you will also need to pay another £10 trading fee to sell them. In total then, these two transactions will incur trading fees of £20 – £10 to buy and £10 to sell – and this is before we’ve taken any stamp duty and capital gains tax into account. Let’s imagine you only buy one share priced at £10. Even if this share were to double in value to be worth £20, you would still be facing a loss of £10 on the overall trade because of the £20 of trading fees which were charged on top of your initial £10 investment. If you were to buy 100 shares at £10 each however – costing you a total of £1000 (excluding fees and stamp duty) – and they were to double in value to be worth £2000, then you would be looking at a gain of £980 once your £20 of trading fees have been deducted (excluding stamp duty and capital gains tax).

We can see then that even though it is possible to purchase just one share, the trading fees involved might make it a little fruitless to do so. If you are investing much larger amounts of money however, then the trading fees may be somewhat negligible compared to the size of the gain.

Stamp Duty

When buying shares electronically in the UK, a tax known as Stamp Duty Reserve Tax will be charged. This is charged at a rate of 0.5% of the transaction cost and will be levied automatically by your online broker when you make the trade. If you are not buying your shares electronically, then stamp duty is charged a little differently and it is usually only payable if the value of the transaction is over £1000. You can find out more about stamp duty charges for both electronic and non-electronic transactions here.

Capital Gains Tax

If your shares have risen in value since you bought them then there may also be capital gains tax to pay on any profit you make when you sell those shares on. This would need to be paid if your total gains for the year have exceeded your yearly capital gains tax allowance. It is possible to avoid paying capital gains tax by investing in shares through a Stocks and Shares ISA.

How much do you think you should invest per trade for it to be worthwhile?

One Response to What is the minimum amount needed to invest in shares?

  1. Investing is shares is quite risky when you don’t have the appropriate expertise, knowledge and practical experience. Even seasoned investment advisors err a lot, when trying to pick the best stocks. In my opinion, investing in ETFs is much safer. You know your portfolio is well-diversified and highly liquid.

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