How to Invest £1,000

This investing blog is home to over 300+ articles on investing. From portfolio design, to investing psychology and trading strategies. But I appreciate that if you just want a quick guide on how to invest £1,000 this is quite an overwhelming amount of content.

That’s why I’ve created this stand-alone summary on how I would invest £1,000 today. The whole thought process, from start to finish.

Disclaimer

I am a financial journalist, not a financial adviser. This article is not independent financial advice. If you need help finding a financial adviser, please visit our separate guide. In this article, I share my own views on how I would invest £1,000. Please perform your own research before you make any investments.

Step 1: Set objective

I first need to decide what my investment will be used for. Will it fund my retirement, form a house deposit, buy a car, or work its monetary magic in some other way?

It is crucial to have an objective in mind from the very start, because the way I invest the £1,000 will need to match that objective perfectly. What to invest in will change depending on my end goal.

If I have no emergency savings, then the only proper use for this £1,000 is to bail me out on a rainy day. When my car breaks down, or if I lose my job, I will naturally dip into this pot. Therefore I wouldn’t allocate a complex objective for this £1,000 if I didn’t have other money in a bank account for emergencies.

Step 2: Check time horizon

I need to be honest about myself regarding time. How much time can I lock this money away?

The longer I can commit money to an investment, the wide range of investment options I will have. I call this length of time my time horizon.

Some investments, such as buying shares or investing in property, require a time horizon of at least five years to allow me to ride out any short term volatility in those markets.

If my objective is an emergency fund, then my time horizon is 1 day – as I might need it tomorrow!

If my objective is retirement, then the time horizon will be very long. If I’m going to invest £1,000 into my pension, then I can probably calculate my time horizon very precisely, as my account will prevent me from accessing it until I reach a certain age.

You may struggle to pin an exact year on when you think you’ll use the money, or you may harbour doubts as to whether you can guarantee you won’t need it for something else.

In these cases, it’s always best to be cautious in making your time horizon guess.

On one hand, if you set the time horizon too short, you may exclude yourself from some attractive investment options.

On the other hand, if you set your time horizon too long, you may be forced to sell a volatile investment such as shares after they’ve crashed, at a significant loss. In my opinion, it’s worth risking the former to avoid risking the latter.

Step 3: Assess risk appetite

I know how long I’m investing the £1,000 for and how I’ll be spending the proceeds. Before I pick investments, I need to double check that my personal tolerance for risk doesn’t take any investment options off the table.

Of course, if given the choice, we’d all pick higher investment returns over lower investment returns. However this choice isn’t given in isolation. With higher returns, comes higher risk, and for some of us, investing too heavily in high risk investments can be an unpleasant experience.

When I was younger, I made an initial investment in a fund which invested in the shares of FTSE 100 companies.

I enjoyed the initial thrill of being an investor, but I felt a degree of stress from the investment I had made. I began to check my portfolio value on a daily basis, and would feel upset if my holdings slipped into the red.

These were indicators that the amount I had invested in higher risk assets was not harmonious with my risk appetite at that time.

I would use my quick risk appetite questionnaire to reveal insights about my attitude to risk before I invested.

If I returned a ‘Risk Averse’ result, I would seriously question whether a stock market investment is appropriate. I would consider investing the £1,000 in a savings account instead.

If I returned a ‘Cautious’ result, I would ensure I achieved a good balance of less risky assets such as corporate bonds to act as a strong counterbalance against daily market movements of shares.

Step 4: Design a basic investment portfolio

Now the fun part – it’s time to decide what type of investments I will make. When considering how to invest £1,000 I will choose simple asset classes rather than complex or expensive investment areas.

Simple investment types include:

Cash (Low risk)
Corporate Bonds (Moderate risk)
Stocks and Shares (High risk)

To design a basic investment portfolio, I decide how to blend these core investment types. In doing so, I consider the rate of return that I can expect to return on each of these types in the long run:

Cash returns about 1% – 2% per year, depending on the account I choose.

Corporate bonds tend to return about 4% per year.

Stocks & shares have historically returned about 5 – 8% per year on average over long periods.

If I can tolerate a higher level of risk and would like to invest £1,000 into a portfolio which generates a 5% – 8% return then I could allocate 100% of my money to stocks and shares.

If I want to create a more balanced portfolio, I might choose to put 50% in corporate bonds and 50% in stocks and shares, for a blended return of 5% overall.

This is the opportunity to put a unique stamp on the portfolio and ensure that it reflects the time horizon of my investment objective and my risk tolerance.

Step 5: Choose a low-cost index fund which broadly represents each asset type

If I wanted a ‘half n half’ portfolio of bonds and shares, I would need to find a corporate bond fund to place £500 and an equity fund to invest the remaining £500.

Stocks & Shares (Equities)

There are over 100 fund options for each, I’m dazzled by the array of choice available in the UK or other countries.

From my list of the cheapest UK equity ETFs, I could pick

iShares UK Equity Index Fund (UK)
HSBC FTSE 100 UCITS ETF
Vanguard FTSE 100 UCITS ETF

I’m generally looking for a low cost fund which invests in a broad range of investments.

As I’m only investing £1,000 I want to only invest in one fund for each investment type to keep my portfolio simple and easy to understand.

I, therefore, would choose an investment fund which invests as widely as possible, so that my fund didn’t leave me exposed to the stock or bond market swings of any single country or industry.

On that basis, I would invest my equity element in

Vanguard Global Equity Fund – Accumulation

This is just my personal preference and not a recommendation. Please perform your own research.

Corporate bonds

I would look for a corporate bond fund that invests globally in companies with respectable credit ratings. Higher risk corporate bond funds do exist which seek higher returns, but this would defeat the objective of including corporate bonds in my £1,000 portfolio in order to manage the risk level.

A fund which invests along these lines is:

Vanguard Global Corporate Bond Index Fund – Hedged Accumulation

Step 6: Deposit cash into a stockbroker

I would compare stockbrokers and pick a broker which

Allows me to invest into my chosen funds for a low fee or no fee at all

Calculates its annual account charge as a % of my portfolio value, rather than a flat fee, as this will help keep the costs down for my small investment.

Step 7: Buy units in chosen funds

After depositing my cash in the investing account, I would search for my chosen funds and invest in a manner consistent with my portfolio design from step 4.

After committing the funds and executing the order, it will usually take 2 – 3 days for the fund units to appear in my account as my investment.

How to invest £1,000

That’s how to invest £1,000. I hope you’ve enjoyed this quick guide and found this article useful. Each of the topics above are areas which I recommend that you research in more detail before you actually place a trade.

Consider today spending a few pounds on some good investing books or a cheap investing course to satisfy yourself that you’ve taken all reasonable steps to prepare yourself for being an investor.

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