One way I can find additional funds to invest in the market is via cost-cutting. For example, I estimate that over the course of a normal week, I could save £38.50 from lunches. My usual coffee and food cost me about £7.50, which I could make at home for a couple of pounds. So if I decided to cut this cost down, here are a few ways that I could put the money to work in the FTSE 100.
Snapping up what’s hot
The first way would be to pick my favourite stock each week and put the funds there. This would be a good way to capitalise on what’s hot in the moment.
For example, over the past couple of months stocks related to the metaverse have been performing very well. This theme is on people’s minds at the moment. Another case was the focus around ESG stocks with the recent COP26 summit. Companies that were declaring big goals and revealing initiatives for being kinder the to planet drew investor attention.
By investing each week in these areas, I can move quickly and always have available funds to put in the next week. The downside to this is that my £38.50 for a particular week is unlikely to make a meaningful difference to my holdings, even if the share doubles in value. Further, if I just feel comfortable in picking FTSE 100 stocks, I might be limited regarding the stocks that fit a particular trend I want to get exposure to.
Building a position over time
The second way I’d invest my £38.50 is to build up positions in solid FTSE 100 stocks over time. For example, I might think that Flutter Entertainment is a good buy. So I could invest each week in the same company for the next couple of months to build up a more substantial stake.
The added benefit of doing this is that I can average-in my buying price. Each week, I’ll get a different price depending on the market movements. Blending my price should allow me to take advantage of any volatility during these months. It also reduces the pressure of investing in one go and trying to pick the best time.
Buying FTSE 100 dividend stocks
The final thing I’d do is invest the money to try and make passive income. This is becoming more of a priority for me recently, given the high level of inflation. Putting my £38.50 in a stock that will pay me a dividend is a way to try and reduce the erosion of the cash value.
Even with a dividend yield of 5%, my weekly investment would only get me £1.93 in dividend income a year. Not even enough for one coffee! Yet if I stick with it and build a portfolio, it can add up over time. For example, if I stuck with it for a year, then in 2023 I’d be making £100 in income a year. Again, nothing groundbreaking, but enough to buy a few coffees each month.
I do need to be aware that with this amount of money, my transaction costs are going to eat into my investment. For example, with an example £5 fee to buy a stock, it’s 13% of my funds for the week. But I could always save up my weekly amount and buy monthly or quarterly to minimise this issue.
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Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.