Sometimes, it can be tough to know the right route to take when it comes to saving and investing. If you’ve saved £1,000 and you’re wondering how best to invest it but don’t know where to begin, we’re here to help.
This complete guide covers everything you need to consider before putting your money to work and some practical tips for actually going ahead with your plans.
What to do before investing £1,000
Investing is an exciting step towards financial freedom. After all, the stock market is one of the greatest wealth-building devices available to everyone.
But before you invest your hard-earned money, it’s vital that you consider a few key questions:
- Are the rest of your finances looking healthy?
- Do you have an emergency fund or some rainy-day money tucked away?
- Should you prioritise paying off high-interest debt from things like credit cards?
- Are you comfortable with the idea of potentially locking your money away for at least three to five years?
The stock market is a volatile place. And it could take years for an investment thesis to play out, generating hopefully handsome returns. But there’s never a guarantee, and wealth can be easily destroyed rather than created.
That’s why financial advisers always ask the highlighted questions above or variations of them. If, after reading this checklist, you think you’re ready to invest and put your £1,000 to work, read on for some exciting ways to get started.
Where should you invest £1,000 in the UK?
The first thing on the to-do list is to open an investment account. There are two types to consider:
1. A share dealing account
Share dealing accounts will grant you access to buying and selling shares on the London Stock Exchange and other exchanges around the world.
There are quite a few to choose from, each with its own fee structure. So, it’s crucial to investigate which one is most suitable for your personal circumstances.
If you’re new to investing, it’s definitely worth using a brokerage that’s designed for beginners. Some good share-dealing platforms for beginners include:
- Hargreaves Lansdown Fund and Share Account
- Interactive Investor Share Dealing Account
- Barclays Smart Investor Investment Account
Using one of these platforms can make things easier for you as the services are tailored to new investors. While you’re learning and finding your feet, it’s ideal if everything is as easy as possible. Otherwise, investing your £1,000 might feel too complicated or overwhelming, which it doesn’t have to be!
Good for long-term, active investors looking for shares and funds
Hargreaves Lansdown Fund and Share Account *
| Trading Commission | £5.95 – £11.95 |
| Account Management Fee | From £0.00 |
- Pros & Cons
- Fees & Charges
Pros
- Reputable broker.
- Earn interest on uninvested cash.
- Huge investment choice.
- No annual account fee for holding shares and ETFs.
- Discounted trading fees for more active investors.
- No account inactivity fee.
- Easy to use.
- Complimentary research and market insights.
- High-quality web platform and mobile app.
Cons
- Standard stock trading fees are relatively high.
- Charting tools are relatively simple.
- Limited advanced trading tools.
- Expensive annual service fees for fund investors.
- Cannot buy fractional shares.
- Share dealing (online) – By default, HL charges £11.95 per trade. However, if you execute 10 or more trades in a single month, this rate drops to £8.95, or £5.95 if you execute 20 or more trades.
- Share dealing (phone & post) – HL charges 1% of the trade value as a fee when trading via the phone or through postal dealing. There is a minimum £20 trading fee, but the maximum charge is £50 per trade.
- Foreign exchange – When trading internationally, HL charges a foreign currency exchange fee depending on the size of the transaction. This fee is 1% for the first £5,000, 0.75% for the next £5,000, 0.5% for the next £10,000, and 0.25% for any amount over £20,000.
- Fund charges – When holding investment funds in an account, HL charges an annual holding fee. The amount is based on the value of your investment. The first £250,000 incurs a 0.45% fee. If investments are worth between £250,000 and £1m, the fee decreases to 0.25%. If investments are worth between £1m and £2m, the fee decreases again to 0.1%. And any value beyond £2m incurs no fees.
- Account charges – Beyond the previously mentioned Fund charges, there are no annual account fees for using a Fund and Share Account.
- Deposit fee – None.
- Withdrawal fee – None.
2. A Stocks and Shares ISA
Another type of account to consider is the Stocks and Shares ISA. This is a tax-efficient account exclusively available for British investors. Why is it special? Well, it works almost identically to any other brokerage account. However, the key difference is that any dividends or capital gains received are 100% tax-free.
Taxes are an often forgotten expense of investing. And by using an ISA, they can be completely bypassed. However, it’s worth noting that these types of accounts typically have slightly higher commission fees.
We’ve compiled another helpful list of top UK Stocks and Shares ISA accounts to help you get started today.
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.
What are the best ways to invest £1,000?
With £1,000, there are plenty of roads you can take as an investor. If you’re completely new to the space, you should start learning the basics of investing in stocks.
Ideally, you should create an investing strategy based on what you want to achieve with your money. Different methods will suit different people, but here are five ways that you can start investing your £1,000.
1. Global index fund
This is probably the easiest option. Get yourself set up with a share dealing account and then find a global equity index fund.
These funds cover a range of stocks from different countries, meaning you’ll automatically get a well-diversified portfolio with just a single investment. Often, these funds also have low fees, which is great for building wealth. But passive investing like this does have its downsides too.
2. Multi-asset managed portfolio
These days, it’s easy to set yourself up with a robo-advisor that will invest your £1,000 and manage it for a low cost.
Often, you just need to select your level of risk, and the robo-advisor will give you a ready-made portfolio containing a number of different assets. A regular investment platform like Interactive Investor offers this service.
Great for investors who want a simple and affordable experience
InvestEngine *
| Account Management Fee |
|
- Pros & Cons
- Fees & Charges
- Sign-up Offer
Pros
- No commission fees on trades.
- Low 0.25% platform fees (0% for DIY accounts).
- Vast selection of ETFs (800+).
- Easy and automatic portfolio rebalancing.
- Can invest in fractional shares.
- Support for ISAs and SIPPs.
- Mobile app and web platform access.
- Good customer service with complimentary educational content.
Cons
- £100 minimum investment to create a portfolio.
- Can only invest in ETFs (no individual shares, trusts, bonds, gilts, or mutual funds).
- No thematic portfolios (Ethical, ESG, etc.)
- No advanced order types (limit orders, stop loss, etc.)
- No direct phone call option for customer support.
- No virtual portfolio or watchlist.
- Platform fee – None.
- Management fee – 0.25% for LifePlan Portfolios and Managed Portfolios. 0% for DIY portfolios.
- Fund Costs – Since investors are buying ETFs, these instruments incur their own management fees that need to be paid. InvestEngine does not make any money off these fees, and the amount that needs to be paid depends on the ETFs owned in a portfolio. These fees start from 0.03% with the average Managed Portfolio fee sitting at around 0.13% per year. InvestEngine provides a complete list of ETFs and their fees.
- Transaction costs – None.
- Foreign exchange – None. All ETFs offered on InvestEngine’s platform are GBP-denominated. It does not offer any foreign currency support on its platform.
- Deposit fee – None.
- Withdrawal fee – None.
IMPORTANT NOTE: if you click on the links below to read the offer terms and conditions, make sure you return to this page and click on the Apply Now button to ensure the sign-up offers listed below get applied to your InvestEngine application.
SIGN-UP OFFER: open an InvestEngine account through The Motley Fool UK and you’ll get an investment bonus of between £10 & £50 when you sign up and deposit £100 (T&Cs apply)
- This offer is for new InvestEngine customers, and only applies to one Portfolio per customer.
- View the full terms and conditions for this offer.
ISA BONUS OFFER: top-up or transfer to InvestEngine by 6pm on 31/05/24 and receive a bonus of up to £2,500 (capital at risk, T&Cs apply)
3. Dividend heroes
Investing £1,000 in a company or fund that pays you a dividend is a good way to start creating some passive income.
This method requires some basic research on your part. Dividend income isn’t guaranteed, but it can be fairly reliable, especially if you pick something like a dividend hero or a dividend aristocrat. You can then decide whether to keep your payments or reinvest them to help grow your portfolio.
4. Investment trusts
These can be a brilliant way to get a managed portfolio at a low cost. Not all investment trusts are equal, and it’s important to research the investment fund you plan to invest in.
You can either pick one investment trust for your full £1,000 or pick a few to spread out your investments. Usually, individual trusts have ongoing fees that you need to be aware of, but they can still be an affordable way to invest.
5. Both sides of the pond
This involves investing in the big US and UK companies. To do this, you can split your £1,000 in half and invest:
- £500 in a S&P 500 index fund
- £500 in a FTSE 250 index fund
This gives you exposure to some of the top companies in both the US and the UK. By doing this, you get quite a variety of stocks for a low fee. But the downside is that you’ll only be invested in companies from these two countries.
Frequently Asked Questions
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Yes! You can actually invest with a lot less than £1,000 in most cases. Some brokerage accounts will let you get started with as little as £1.
Rather than investing your £1,000 in one big chunk, you can split it up. For example, you could invest £100 each month over 10 months.
This is called pound cost averaging, and it can be a good strategy for beginners. It allows you to gradually get more comfortable with investing by starting with smaller amounts. If you need some more help with the basics, here's a simple guide on how to buy shares.
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Absolutely. However, it's important to recognise that each investment is exposed to a level of risk. Not every investment may go in your favour. And therefore, it's entirely possible to lose money rather than grow it.
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Theoretically speaking, there is no limit on how much money an investor can make, even when starting with just £1,000. However, in practice, expectations need to be in the right place.
On average, the FTSE 100 has delivered an annualised return of 8%, including dividends. The FTSE 250's average return is closer to 11%, while the S&P 500 average across the pond is around 10%.
Outperforming the stock market average is entirely possible, and many investors have done it. But doing it consistently can be quite challenging, requiring a lot of time, emotional discipline, and rigorous due diligence.
That's why most individual investors prefer to go down the route of buying shares in an index fund.
Assuming the FTSE 100 continues its historical performance into the future, a £1,000 investment today could be worth £10,935 in 30 years. But an investor who contributes £1,000 every month to their portfolio for three decades may be sitting on a nest egg worth £1.5m.
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Relatively speaking, £1,000 isn't much money to work with. After all, an 8% annual return is only £80.
However, that's considerably more than what an individual savings account could ever hope to offer, and it lays a good foundation for building a larger portfolio over time.