The Motley Fool

How to invest in the Footsie if you have only £1,000

While it would be nice to have a seven-figure sum to invest in shares, for most that’s unfortunately not possible. Certainly, it is possible for almost anyone to end up with a portfolio worth £1m+, but starting out with a much lower amount can be tough.

Cost considerations

One area often overlooked by investors is the cost associated with buying and selling shares. Even though the internet has significantly reduced transaction costs, the reality is that with £1,000 to invest, a significant part of their profit is likely eaten up in charges.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

For example, a competitive online broker is likely to charge up to £15 per transaction. When 0.5% stamp duty is added, it equates to a fall of 2% in the return on that £1,000 investment. With the cost of selling factored in, plus the spread between the bid and the offer price, an investor may need to generate a total return of 3.5%+ before they even break even. Given that shares generally return 7-8% per annum, that means up to six months of returns are paid out just in charges.

Therefore, it makes sense to try and keep costs to a minimum when investing relatively small amounts. One way of doing this is to adopt a buy-and-hold strategy, which means the volume of transactions is relatively low. Another way is to utilise aggregated orders. They’re available through most online brokers and while they reduce flexibility, they also cut buying costs by around 80%.

Tracker funds

Of course, someone who has £1,000 to invest in shares should still seek to diversify in order to reduce risk. One way is to buy a tracker fund. It aims to track the performance of the FTSE 100, or whatever index it is designed to follow. While its performance is unlikely to perfectly mirror that of the index due to tracking error, it should provide a result that is very close to the real thing. And with tracker funds generally having low charges, the total returns on offer could be significant.

Tracker funds also provide flexibility in terms of investing small amounts on a regular basis, which makes them ideal for smaller investors. And with the FTSE 100 yielding 3.9%, they could make a more rewarding, albeit riskier, alternative to savings accounts. With inflation being at around 3%, they could provide a means of obtaining a real income return over the medium term.

Certainly, buying shares in individual companies rather than purchasing a tracker fund can lead to the prospect of outperformance in the long run. It could mean that you’re able to generate double-digit returns per year. But for an investor starting out with £1,000, a tracker fund may provide a more cost-effective solution in accessing the growth potential which the Footsie has to offer.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.