Before the internet, people needed a fair chunk of cash to start investing due to high brokerage fees. Today though, anyone can get going with modest sums. Technology’s democratised stock market investing.
Therefore, £1,000 is easily enough to get the ball rolling this year.
Little acorns
With such an amount, the go-to option in the UK would be a Stocks and Shares ISA. This marvellous account shields returns — both dividend income and share price gains — from the taxman. Obviously, this enables a portfolio to grow and compound far more quickly.
The annual contribution limit is £20,000. But the good news is that it’s possible to build long-term wealth on nearly half that.
For example, someone who invests £1,000 a month would reach a £1m ISA in just over 23 years, assuming all dividends were reinvested and a 10% average return was achieved.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Dividend stock to consider
The average ISA provider offers a world of investing options, ranging from US growth shares like Amazon to UK dividend stocks like Lloyds.
For cautious investors who like the idea of receiving dividends, I think Legal & General (LSE: LGEN) stock’s worth considering. It carries a towering 9% forecast dividend yield for 2025!
Of course, dividends are never guaranteed, and in a financial meltdown the insurance and asset management group could face increased liabilities and decreased asset valuations.
Nevertheless, I think the income potential looks strong, particularly after the firm just sold its US protection business for $2.3bn.
From this, it has earmarked £1bn for a new share buyback programme. And it plans to return the equivalent of 40% of its market capitalisation — over £5bn — to shareholders through dividends and buybacks by 2027.
Based on current forecasts, a £1,000 investment in Legal & General shares could yield roughly £152 in dividends over the next 18 months.
Growth stock to consider
For more adventurous investors, I think Nu Holdings (NYSE: NU) is worth a look. Commonly known as Nubank, this is Latin America’s leading fintech firm and the largest digital bank platform outside of Asia.
Incredibly, the Warren Buffett-backed company now has over 100m customers in Brazil alone, while also expanding rapidly in Mexico and Colombia. In fact, it’s doubled its customer base in Mexico over the past 12 months!
In 2024, revenue’s expected to have jumped 47% year on year to $11.8bn, while net profit rocketed 84% to $2.2bn.
Naturally, the branchless bank cannot grow at such a blistering pace indefinitely, and it faces above-average risks of hyperinflation and wild currency swings in Latin America. Such issues could knock earnings and dampen investor enthusiasm.
Still, analysts have annual revenue heading above $21bn by 2027, with profits growing at an even faster rate. And Nu is expanding beyond banking, recently launching mobile phone services in Brazil under the NuCel brand.
As we make progress in our execution, we are preparing ourselves to consolidate Nu as the world’s leading digital services platform, going beyond financial services.
David Vélez, founder and CEO of Nubank.
Enticingly, the stock trades at 23.5 times forecast earnings for 2025, with the multiple falling to 17 by 2026. For a growth machine like this, I think the valuation looks far too cheap.
I’m looking to add more shares to my own portfolio before the summer.
