The best ways to invest £1000

If you’ve got some unallocated money, say £1,000, for example, you’re thinking of investing it, and you’re totally new to investing, knowing where to start can be pretty tricky. However, help is at hand. This article has been written to give you some ideas on how to invest £1,000.

Questions to consider before you invest £1,000

Before going any further, you must consider your attitude towards risk. You can save £1,000 with very little or no risk at all. However, you have to take risk into the equation if you are contemplating how to invest £1,000. Therefore, the first thing is understanding the difference between saving and investing.

The difference between saving and investing

Saving and investing are similar. They both share the same goal: to help you accumulate money. But let’s consider both in their own right, starting with saving.

When you think about saving, you will probably think about bank products such as ordinary savings accounts or perhaps government-backed bonds like Premium Bonds issued by the NS&I. The risk associated with these types of products is virtually non-existent, so you might think it’s the best way in terms of how to invest £1,000. However, there is a downside: the interest these types of savings earn.

If you’re considering saving or investing for the first time, you might not think that the interest your money can earn is of much importance. However, it is. You have to consider inflation.

If you tuck your £1,000 into national savings bonds, it won’t earn any interest. Okay, it’s offset by the fact that you might win a money prize. However, the odds of doing so are quite enormous – 1 in 1,192,516,529 to win £10,000, and 1 in 57,837,067,198 to win the £1 million prize. The odds on even the lowest prize (£25) are high – 1 in 34,500.

You can put your money into an ordinary savings account with a High Street bank. At the time of writing the best easy access savings account rates vary between 4.5% and 5.2%. It’s better than it was before inflation here in the UK started spiking a couple of years ago, as it is now down to about 3.1% from a 40-year high of 11.1%. But you have to choose carefully, Lloyd’s Bank ‘Easy Saver’ accounts only pay 1.3% interest. After one year, your £1,000 in this account would be worth £1,013. But with inflation currently at 3.1%, after 12 months your £1,000 would only be worth £982 in terms of its real money purchasing power.

Understanding Your Financial Goals

Understanding your financial goals is a critical step in shaping your investment strategy. Whether you’re planning for retirement, saving for a significant purchase, or looking to grow your wealth, having clear and defined objectives will guide your decisions. If you’re considering how to invest 1000 pounds, for example, knowing your financial goals will help you choose the right investment vehicles, risk tolerance, and time horizon.

By aligning your investment choices with your unique financial needs and aspirations, you can create a tailored plan that meets your current requirements and also sets you on a path towards long-term financial success. This alignment ensures that every investment decision, big or small, is made with purpose and direction, maximising the potential for growth and minimising unnecessary risks.

Is £1,000 enough to start investing?

£1,000 is more than enough if you’re thinking of investing. You could even start with less – say £500. But let’s stick with the original figure and think in terms of how to invest £1,000. What are your options?

Where to invest £1000: types of investments that are accessible

Interest in investing has been gathering pace ever since the first Coronavirus lockdown. With more and more Brits wondering what are the best ways to invest £1000, let’s look at the possibilities. The options open to you when pondering in what to invest 1000 pounds include:

• Stocks and Shares
• Bonds
• Mutual Funds
• Exchange Traded Funds (ETFs)
• Peer-to-peer lending
• Pensions
• Robo investment platforms

If you’re lucky enough to be asking yourself how to invest 1,000 pounds per month, then a pension like a SIPPS has got to be a serious consideration. The initials SIPPS stand for Self-Invested Personal Pension Schemes.

Turn £1000 into £10,000: How?

Knowing how to double 1000 pounds or turn £1000 into £10,000 is challenging but it’s possible with careful planning and a long-term perspective. There are a number of ways to significantly grow your £1,000 investment here in the UK. Here are a few strategies to consider:

• Invest in high-potential growth stocks or diversified ETFs.
• Invest for the long term to ride out short-term stock market volatility.
• Diversify your portfolio across different asset classes, such as stocks, mutual funds, and real estate.
• Regularly contribute additional funds to accelerate growth.
• Reinvesting your earnings will help your wealth grow faster through compound interest.
• Do not panic sell, stay calm and do not sell your investments when the market is down. Also, try not to get into the mindset of FOMO (fear of missing out), as it might lead to irrational investment decisions.
• Consider seeking advice from a financial advisor.

There is no magic formula when it comes to how to invest £1,000 and turn it into £10,000. However, if you are willing to put in the work, it is possible to achieve your goals. It is important to note that there is no guarantee that if you invest 1000 pounds, it will turn into £10,000 because any investment carries some degree of risk.

A SIPP is one of the best ways to invest £1,000 per month

SIPP schemes entered the mainstream here in the UK following the 2015 pension freedoms, which allowed people more control over their retirement savings. In 2020, it was estimated that people had invested £180 billion into approximately 2 million products. So, it’s never too early to start squirrelling money away for your retirement – the more, the merrier. But getting your financial planning right is of paramount importance and learning how to invest on a budget will stand you in good stead.

If you knew how to invest £1,000 into a SIPP every month, and you’ve been doing it religiously ever since, you will soon have a considerable nest egg for your twilight years. While such an investment is suitable for people who transfer pensions because they want to have all of their pensions in one pot, you will be responsible for managing your investment. You will need to have the time, knowledge and confidence to go down this route, unless you decide to choose a Moneyfarm pension.

Copy Trading – The Best 1,000 Pounds Investment to Trade Passively?

If you don’t have the knowledge and confidence to be hands-on, you might be better off going down the Copy-Trading path. Copy-Trading mirrors the portfolio and trading of experienced investors. This could be the way to go if you want to know how to invest £1,000 with minimal involvement. There is little or no stress. Your chosen trader determines which assets are to be bought and sold.

If you are considering where to invest £1,000, Copy-Trading is quite a good idea for beginners, and you can take a look at the day trading sites for a further explanation and some platform suggestions.

Should You Invest £1,000 in Bitcoin?

Bitcoin is the world leader in cryptocurrencies and features regularly in financial news bulletins, but not necessarily for the right reasons. While it has grown phenomenally since its first launch, its value has also plummeted from time to time.

In November 2021, 1 BTC was worth nearly $70,000. In January 2022, it fell to $35,000, but it rallied to around $45,000 in February. As of August 2023, BTC was worth around $29,000. It is a seriously volatile investment and certainly not for the fainthearted. If you were to ask, ‘Is Bitcoin the best place to invest £10,000?’ most wealth specialists would tell you a definite no – unless you are prepared to invest for the long term so you can ride out the many lows it will experience.

How to invest £1,000 and avoid tax

When you invest 1000 pounds, the impact of taxes can vary depending on a number of factors, including the type of investment, the length of time you hold the investment, and your personal tax bracket.

When you are investing 1000 pounds, capital gains tax and dividend tax can affect your investment. Generally speaking, you only have to pay taxes on the income you receive from an investment. For example, if you invest £1,000 and you make £500 profit, you will only be taxed on the profit amount.

The amount of tax you pay will also depend on the sort of investment. For instance, you must pay capital gains tax on the income from stock, bond, and other asset investments. Profits from investments in savings accounts, general investment accounts, and other income-producing assets will also be taxed.

The length of time you hold an investment will also affect how much tax you pay. For example, if you invest 1000 pounds for less than a year, you will pay short-term capital gains tax. However, holding an investment for more than a year means you will pay long-term capital gains tax.

Your personal tax bracket will also affect how much tax you pay. For example, a high-income taxpayer will pay a 40% tax on capital gains, while a low-income taxpayer will pay a 20% tax on capital gains.

The best way to invest 1000 pounds in the UK is to consider tax-advantaged accounts, such as retirement accounts or Individual Savings Accounts (ISAs), to minimise the impact of taxes on your investments. Depending on the specific account type, they offer tax advantages like tax-free growth, tax-free dividends, and income tax free withdrawals.

Taxes can be complicated, and their impact on investments can vary based on individual circumstances and local tax laws. Consulting a tax professional or accountant is recommended to receive personalised guidance for your specific situation.

How to invest £1,000 in Stocks and Shares

Stocks and shares are among the most popular investment vehicles. But if you want to invest in them actively, you need to understand how they work.

If you decide to be an active investor, once you’ve studied the basics, your next step in learning how to invest 1k in stocks and shares is to appoint a broker.

Brokers fit into two categories – full service and discount. The full-service type offers a full range of brokerage services and provides financial advice on healthcare, retirement, and many others. They usually act for high-value investors and charge considerable fees for their services. So it might be the best way to invest £10,000 if you consider yourself to be in this bracket.

However, if you consider yourself a more modest investor, the best way to invest 1K in stocks and shares is to choose a wealth specialist to work with – a company like Moneyfarm, for example.

Investment ISAs, also called Stocks and Shares ISAs, are among the most popular investment vehicles. As well as holding a number of different stocks and shares, some ISAs can hold ETFs (Exchange Traded Funds). For instance, you can take out an ISA that tracks the FTSE 100 or 250 or the US S&P 500. Others include the MSCI China ETF Tracker or a Global Clean Energy ETF Tracker.

Investing in Managed Funds

Another financial vehicle to consider when thinking of how to invest £1,000 is managed funds. Actively managed funds are investments in a particular sector, index, or geographical area. In this way, they are similar to ETFs. But the difference is that you will have a professional fund manager who will select the underlying holdings according to a specific investment strategy designed to outperform the benchmark for the particular market at which it is aimed.

Because you will be using the services of a professional fund manager, you will pay higher fees for managed fund investments than if you were to choose a more passive vehicle like an ETF. Examples of managed funds include Investment Trusts, OEICs (Open Ended Investment Companies), and Unit Trusts.

Using Robo Advisors

A Robo adviser service could be the best place to invest £1,000 if you are comfortable with this type of service, which relies on preset algorithms. Some Robo advice services are pretty much 100% automated. In contrast, others, such as those offered by Moneyfarm, offer Robo services with a human touch featuring three layers of human intervention built-in.

Food for Thought

If you are thinking about how to invest £1,000, I hope we’ve given you some good ideas. But whichever investment route you decide to go down, risk will always be involved. Investing over the long term and diversifying your portfolio are the best ways to reduce any risk, but you can never ignore it 100%.

FAQ

What should I invest £1,000 in?

You can invest £1,000 in stocks and shares, cryptocurrencies, funds, peer-to-peer lending, robo-advisory platforms, and SIPPs.

How can I invest 1,000 and make money fast?

There is no fast way to make money when investing £1,000. However, you can make good returns while investing and lose money from your investments.

How do beginners invest?

Most beginners invest in ETFs, index funds and SIPPs instead of individual stocks. They also use investment apps and robo-advisors due to limited financial knowledge.