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How to invest £1,000

Karl Talbot 30th Nov 2023 One Comment

Reading Time: 5 minutes

Play your cards right and a modest £1,000 investment today could put you on the path of building a sizeable stock market portfolio.

In this article, we’re going to explore how beginner investors might choose to invest an initial £1,000. Plus, we’ll explore how much money investors can make by starting with a low four-figure sum.

Prefer to start investing with a smaller amount? Read on, as much of the below will still be relevant…

Is £1,000 a good amount to start investing?

While there’s no magic figure, £1,000 could be the perfect sum to start your investing journey.

Whether £1,000 is the right amount for you will ultimately depend on a few factors such as your…

    • Current financial situation,
    • Tolerance for risk
    • Financial goals

Let’s take a look at each of these factors in more detail…

1. Your financial situation

If you’re debt-free and you’ve a few thousand in savings, then £1,000 might be the ideal sum for you to test the waters.

£1,000 is a large amount of money, of course, but as long as you aren’t reckless with the rest of your cash, you shouldn’t face a financial catastrophe if you investments end up turning sour.

On the flipside, if you’ve (non-mortgage) debt, or you lack a decent emergency fund, then you may wish to start off with a much smaller amount. You may wish to hold off investing altogether – at least until your financial situation improves.

2. Tolerance for risk

Another factor that comes into the equation is your tolerance for risk.

Remember, we’re talking about ‘investing’ here, and no matter how careful you might be, there’s always a chance of losing money when buying stocks, shares, or any other asset for that matter.

If you’re comfortable with this risk, then you may be happy to put £1,000 on the table. More risk-averse newbies may, however, prefer to start with a lower amount and there’s certainly no shame in this.

3. Investing goals

This is a big one as it ultimately refers to the question….  ‘Why are you investing in the first place?’

If you have a set financial goal in mind – such as growing your wealth over the next 20 years – then great! However, if you aren’t entirely sure about why you’re investing, or your investing timeframe, then try to understand more about your reasons investing before taking action.

For some helpful steers, take a look at our article on how to set your investing strategy.

What should beginner investors do with £1,000?

OK, so you’re a newbie investor happy to begin your investing journey with £1,000. But where exactly do you put this money?

Stocks, shares, bonds, crypto, property (REITS), alternative assets?…

Sadly, without a crystal ball, we can’t tell you which investments are likely to perform well over the coming years. What we can tell you, however, is that it’s often a good idea to mix things up when putting together a portfolio.

Why diversification is important

In the world of investing, diversifying your assets is important as it can help to reduce your risk of suffering significant losses. That’s because if you’ve a mix of investments, you’re less likely to see the value of your portfolio plummet should a single asset or two experience large falls. It’s the same reason why any sensible person wouldn’t carry all of their eggs in one basket.

It’s important to note that you don’t have to make lots of individual investments in order to diversify a portfolio. For example, if you’re looking to gain exposure to a mixture of stocks & shares, an index fund or exchange-traded fund (ETF) may do the trick. Click on the links to learn more about them.

Don’t forget about ISAs…

If you’re investing for the first time, consider putting a tax-free wrapper around your investments by opening an ISA. That way any returns delivered by your investments will be free of tax, year-after-year, for as long as your investments sit within the ISA.

For the current 2023/24 tax year, investors are allowed to put £20,000 into an ISA – so an initial £1,000 investment will give you plenty of room to add more funds later down the line. Just bear in mind that if you don’t use your ISA allowance in any given tax year then it’s gone forever. For more, see all you need to know about ISAs.

Investing £1,000: A sample portfolio

While we can’t tell you which assets to buy, a well-diversified investor may wish to invest £1,000 in the following manner.

(And, no, we don’t expect you to copy this sample portfolio. It’s just a way of showing how a newbie investor might diversify an initial £1,000 investment).

1. £500 in a FTSE 100 tracker.

Investing in the 100 largest companies listed on the London Stock Exchange through a FTSE 100 ETF would provide strong exposure to blue chip companies based in the UK.

2. £150 in a S&P 500 tracker

A £150 investment in a S&P 500 ETF would help to broaden this investor’s exposure to non-UK listed shares.

£150 in a REIT ETF

A £150 investment in a Real Estate Investment Trust ETF would provide exposure to the UK property market. As we know, the property market often performs very differently to stocks and shares, so investing in REIT might be an effective way for our example investor to diversity his or her portfolio.

3. £150 in Government Bonds

Typically Government bonds have an inverse relationship to stocks and shares, and this is why they’re often a popular option for investors looking to diversity their portfolios. That’s because if stocks tumble, it’s likely that a decent allocation of bonds would help cushion the blow.

£50 in a ‘fun’ investment

Who said investing had to be 100% serious? There are a bunch of fun, alternative investment asset classes out there with a realistic potential to deliver high returns. Lego, Polly Pockets, fine art, to limited edition sneakers – a small proportion of a portfolio invested in alternative investments would be far from irresponsible.

To learn more about selecting investments, read our article that explains the ins and outs of asset allocation.

How much money can you make by investing £1,000?

There’s certainly no limit to how much you could make by investing an initial £1,000. Just bear in mind that chasing ‘quick wins’ is often an unsuccessful strategy, best explained by a famous quote by the legendary investor, Warren Buffet: “The stock market is a device to transfer money from the impatient to the patient.”

In other words, using an initial £1,000 investment to kickstart a long-term investing habit will probably give you the best chance of seriously increasing your wealth over time.

And even if you don’t have much more than £1,000 to invest right now, you can always add to your portfolio over time. And on this point, those who may struggle to amass large sums to invest could seriously benefit from a pound-cost averaging strategy.

And while we’re on the subject…. if you’re keen to learn more about investing do sign up for our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can always unsubscribe if you find it’s not for you.

Disclaimer: When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research.

MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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martin
martin
1 month ago

well the trick is to have a £1000 to invest

Jasmine Birtles

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Jasmine Birtles

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