If you are asking where to invest £1,000, I reckon you’ve probably already made a crucial decision – stuffing the money is a Cash ISA or other interest-paying bank account won’t help you accumulate a fortune.
Instead, you could have been researching by reading websites such as The Motley Fool and you’ve realised that the stock market could offer decent returns over the long haul. Indeed, historically, the stock market has beaten all other major assets like bonds, cash savings and property.
Why I’d begin with collective investments
However, if this is your first investment, I’d be wary of jumping right in and buying the shares of individual companies. It takes time to learn about investing and to develop the skills you’ll need. And I don’t care whether you’re a savvy private company director already, or a top accountant, or a professional manager with a long and successful career behind you. Learning how to invest well takes most people a long time, whatever our backgrounds might be.
Another issue is that £1,000 isn’t really enough to invest in just one company’s shares. The transaction costs will eat up too much of the money and set you behind before you start. My own personal minimum investment is £2,000 for one company, which I feel makes the transaction more economic.
But investing in share-backed vehicles is a good idea and I’d go for low-cost, index tracker funds. Many of them will accept a minimum investment of just £100, so I’d be inclined to diversify my investment across two or three of them. They also usually accept minimum regular investments of around £25. And after investing my initial £1,000, I’d aim to follow it up by investing regularly every month.
The principle of compounding is the key to building wealth. So I’d be sure to select the accumulation version of each tracker fund rather than the income version because it will automatically roll your dividend income back into the fund.
One great thing about passive index tracker funds is that you can find one to back your judgment in most geographies and sectors. But I’m bullish about the prospects for the UK and would also want to invest in the US because of the country’s long record of economic success.
So I’d likely spread my £1,000 between funds such as the Vanguard FTSE 100 index, UBS S&P 500 Index, and HSBC FTSE 250 index. But there are many tracker funds to choose between and you’ll find most of them on investment platforms such as Hargreaves Lansdown. The platform provider makes the process of investing in funds easy, and it’s well worth exploring the firm’s website and those of similar providers.
One final consideration is to ensure you take advantage of tax-efficient options such as buying your funds within a Stocks and Shares ISA. Again, firms such as Hargreaves Lansdown can help you do that.
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Kevin Godbold has no position in any 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.