Best way to invest £1,000: 6 ways to invest it

So you’ve got £1,000 you want to invest? Amazing news! We’ve pulled together some options for putting that £1,000 to good use and to stop yourself from blowing it all on a trip abroad or takeaways (though there are worse things you could do with a spare grand). Not everything on our list is strictly investing, but it’s worth looking at all of your options and making sure you know the risks that come with investing.

Before you begin, a few considerations

There are a couple of questions you should ask yourself before you decide what to do.

Can I afford to lose it?

The first question you need to ask yourself when investing £1,000 is whether you can afford to lose it. That may seem a silly question – who can really afford to lose £1,000? And even if they can, surely everyone would rather keep it? However, judging the level of pain you feel can be a useful guide to how much risk you can take.

If you would feel some mild irritation, but ultimately shrug your shoulders, perhaps you can take a punt on a technology investment that might make you multiple times your money but comes with a far greater risk of losing money. If, on the other hand, losing money is the stuff of your nightmares, then you are going to need something that’s a little safer but offers less reward, like a savings account.

That said, you will have to be careful which savings account you pick given that interest rates are below 1% and the growth of your money will probably lag inflation, meaning that while the amount of money you have increases, you lose money in real terms over time. There are different risks with every decision.

How long can I tie it up for?

Another important consideration is how long you can tie up the money for. If you are likely to need it for a house deposit in a few years, you certainly shouldn’t be dicing with very risky investments like single stocks, cryptocurrencies or niche commodities. That’s not much better than betting on the 3:20 at Chepstow. Arguably, you shouldn’t be looking at stock markets either, which usually need a five year time horizon in order to ride out the volatile patches. If you have a longer time horizon you can afford to take a little more risk in the hope of achieving higher returns.

How to invest £1,000

Now we’ve got that covered, here are some of the best ways to invest £1,000.

Pay off expensive debt

If you have any expensive debt and also happen to have money to spare, pay it off. The chances are that your bank is making a lot of money out of you. Paying off expensive debt should be your first priority if you’ve got £1,000 in your pocket. There is pretty much nothing else you could do with your money that would give you better returns, as you could be paying more than 50% in interest.

It is also worth checking if you can restructure any remaining debt over and above £1,000 to a lower rate. Loan rates today are typically between 3% and 6% and may be a better option than an overdraft.

Put it in a savings account

If you really can’t bear to lose your nest-egg. It’s going to have to be a savings account. You’ll be protected by the Financial Services Compensation Scheme up to £85,000 if the bank goes bust so your capital is safe. The problem with a savings account is the pathetically low rates of interest on offer so you really have to scout around for the best deals.

It’s possible to get up to 2% on some current accounts for balances up to £1,500. The best easy access savings account is currently 1.1% and you can get a little higher if you’re willing to tie your money up for a year or more. It’s not exciting, but should keep your money intact.

Invest in a collective fund

If you’re dipping a toe into stock market investment for the first time, the best option is to go for a collective fund that gives you broad global exposure to a collection of the world’s largest companies. This may be through an ETF on the MSCI World or through a global fund from a good fund group. So-called “multi-asset” funds can also be an option. These give you a blend of bonds and equities, based on your risk profile (from cautious to risk-taking).

Invest in the stock market

It’s a rookie error to find the latest “hot” technology company and put all your cash in there. You need to ask yourself whether you’ve really got the inside line, or whether the potential growth is already in the price of the shares. If you’ve really got an appetite for risk, try a sector ETF in one of the key growth areas: artificial intelligence, cloud computing, the energy transition or Fintech. They’re risky, but at least they’re diversified across a range of stocks. You may win big, but don’t kid yourself that it’s a safe bet, no matter how compelling the trend.

Emerging markets might be another option for those who are happy to see their capital bounce around. In the past 20 years, China has grown to be as important on the global stage as the US, and investors could capture these changing geopolitical fault lines with an investment in emerging markets.

Below we’ve illustrated how a £1,000 investment might look like with 3%, 5% and 7% growth. This is only a demonstration, though. Stock prices can move down as well as up. Make sure you do your research on what you intend to invest in.

How to invest in the stock market

1. Decide what you want to invest in. Decide if you want to buy company shares, exchange traded funds or fancy a ready made portfolio – this will help you with the next step.
2. Find a stock broker. You’ll need one that offers the type of investment you want. Take a look at our comparisons below and read reviews to make sure they suit your needs.
3. Sign up and fund your account. You’ll need to provide some personal details and information about how you’ll fund your account.
4. Find your chosen investment. Research some of the shares you’re interested in and find it on your chosen platform. If you want a ready-made portfolio then check these out too.
5. Choose how much you want to invest. With these platforms you typically type in how much you want to invest and the provider will deal with how much of a share that equates to.
6. Hit buy. It’s as easy as that!

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Invest in yourself

The pandemic may be a once-in-a-lifetime event, but the jobs market can always be precarious. Your £1,000 could be used to establish a “side hustle” – whether you’re a keen butcher, baker or candlestick maker. Or, you could invest in a course that could further your career. This may pay off many times in the future. Even if there is no immediate reward, you may be giving yourself a useful fall-back position.

Put it in a pension or ISA

If you put your £1,000 in a pension and you’re a 20% taxpayer, you’ll get £200 added to your investment, £400 if you’re a high rate tax payer (though you’ll need to claim it through a tax return). £1,000 invested when you are 25 could be worth £5,700 when you are 60. That same £1,000 invested when you are 45 will only be worth £2,100 so it’s worth starting pension provision early.

The other option is an individual savings account (ISA). You won’t get any upfront tax relief, but any income (such as dividends) will be received tax free and you won’t pay any capital gains tax either. It’s good practice to save in a tax-efficient scheme if possible and so opening a pension or ISA early on can get you into good habits.

Bottom line

Investing £1,000 probably isn’t going to make you rich, but don’t underestimate how much difference it could make to your financial well-being. Spent wisely, it can set you on a path to a better financial future. Consider the options available to you, whether you have expensive debts and exactly what you fancy investing in, whether it’s stocks and shares or yourself.