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Have £1k? Here’s how I’d start investing today

If you have £1,000 saved, and want to start investing your money, there are thousands of investments out there to choose from, which can be daunting for first-timers.

So, with that in mind, today I’m going to explain how I would start a £1,000 portfolio to help you navigate the investment world.

Starting small

A £1,000 investment isn’t really enough to build a well-diversified portfolio of single stocks, and with this being the case, I think it is better to buy a low-cost index tracker fund instead.

A low-cost tracker will give you exposure to a broad range of companies in different industries at the click of a button, without you having to go out there and build a portfolio yourself.

High risk, high reward

Which tracker fund you decide to buy depends on your risk tolerance. For example, if you’re investing for the future, with a multi-decade time horizon in mind, then the FTSE 250 might be the best option for you.

This index offers what I believe is the perfect blend of income and growth. It is made up of the UK’s top 250 mid-cap stocks, which tend to be more volatile than their large-cap peers in the FTSE 100, but have historically produced better growth and returns for investors.

The index’s long-term return has averaged 9% per annum although it is not uncommon for the index to fall 10% or 20% in just a few months (between June and December last year it collapsed 21%). That’s why I think the FTSE 250 is only suitable for investors with a long term outlook and high risk-tolerance.

Blue-chip income

If you don’t think you can deal with this level of volatility but are still looking for high single-digit returns over the long term, then I believe a FTSE 100 tracker is the next best option.

Over the past decade, the returns from this index have been slightly lower than those of the FTSE 250, by around 3% per annum, but the ride has been a lot smoother.

For example, during the past 12 months, the FTSE 100 has added 8.1% compared to a gain of just 0.8% for the FTSE 250. Also, the blue-chip index supports a dividend yield of around 4.3%, nearly double that of the FTSE 250.

Slow and steady

If risk is really not your thing, and you only have a few years of saving ahead of you, then I highly recommend buying into Vanguard’s LifeStrategy 40% equity fund.

I like this investment because it offers the perfect blend of stocks and bonds. It is 40% international equities and 60% bonds, providing a mix of steady income with a small capital growth kicker. This combination has helped turn a £10,000 investment in May 2011 into £16,800 today, and there has been relatively little volatility along the way.

LifeStrategy

So, if you are looking for an instant portfolio of stocks and bonds with a global focus, then I highly recommend buying the LifeStrategy fund. With an annual management fee of just 0.22%, it gives you an instant portfolio at the click of a button with no need for any additional input on your part.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.