An investor starting out with £5,000 to invest today has a wide range of options. Stocks, funds, exchange-traded funds (ETFs), investment trusts, bonds, and commodities are just some of the assets they could go for.
Here, I’m going to discuss how I’d invest my first £5k. This is where I’d put my money for long-term growth.
Investing £5,000: the first move I’d make
If I was starting out with £5,000 to invest today, the first thing I’d do is put the money in a Stocks and Shares ISA. This is a type of investment account in which all capital gains and income from assets are tax-free. By placing my investments within an ISA, I could potentially save a lot of money in tax over the long term.
Where I’d invest £5k
Once my money was in an ISA, I’d then look to deploy it into the stock market. It’s ultimately the greatest wealth creation machine in all of human history.
In terms of specific investments, if I was looking to keep things simple, I’d put my money into Fundsmith Equity. This is a global equity fund that’s managed by portfolio manager Terry Smith (who is sometimes called ‘Britain’s Warren Buffett’).
One reason I’d pick this fund is that it has a fantastic performance track record. Since its inception in late 2010, it has returned about 17% per year. But remember, past performance is not a guide to future performance.
Another reason is that I really like Smith’s investment style. Like Buffett, he invests in high-quality businesses and holds them for the long term. It’s a really simple strategy that works well.
I’ll point out that Fundsmith isn’t the cheapest investment fund around. Ongoing charges are around 1% per year. There are plenty of low-cost ‘tracker funds’ with lower fees. However, I think the fund’s performance track record justifies the fee.
Investing £5,000 in shares
Alternatively, with that £5k, I’d consider investing in some individual stocks.
If I was to go with this approach, I’d look to invest in a selection of world-class companies that are poised for strong growth in the years ahead.
Companies that come to mind are:
- Apple, the maker of the iPhone.
- Amazon, the world’s largest online shopping company.
- Microsoft, one of the world’s largest technology companies.
- Alphabet, the owner of Google and YouTube.
All of these ‘Big Tech’ companies are very dominant today and, in my view, almost guaranteed to get much bigger in the years ahead as the world becomes more digital. Meanwhile, they’re so ingrained in our lives now that they’ve become quite ‘defensive’ in nature. On the downside, all are listed in the US, meaning trading fees can be a bit more expensive.
It’s worth pointing out that investing in a handful of stocks is much riskier than investing in a diversified fund. If I only invested in four stocks, and one crashed (which could happen), the overall performance of my £5k investment could be significantly impacted.
So if I was going with this approach, I’d want to keep adding to my portfolio over time, and increasing the number of holdings in order to lower my overall risk.
