When you’re starting out as an investor, the whole experience can be quite daunting. There are many investment options. Do you choose individual stocks or opt for funds or investment trusts instead? Do you stick to UK stocks or look internationally too? It’s not easy when you’re a beginner and trying to get a feel for how investing works.
In this article, I’m going to explain how I would approach it if I was investing my first £1,000 today.
Diversification
One of the most important concepts in investing is that of diversification. This is the process of spreading your money around into a number of different stocks or assets in order to lower your risk. In other words, not putting all your eggs in one basket. No matter how much research you do, individual investments can backfire. Even top investors like Warren Buffett make mistakes at times. This is why diversification is so important.
But diversifying when you only have a small amount of money to invest is a little tricky. With each trade costing £10 or so, you’re looking at £100 in fees to set up a 10-stock portfolio. If you’re starting out with £1,000, you’re down 10% before you’ve even started.
For this reason, if I was investing my first £1,000 today, I wouldn’t put it directly in individual stocks. Instead, I’d put my money into a low-cost mutual fund, investment trust, or exchange-traded fund (ETF). I’ve explained the difference between the three here. With these types of investment products, your money is pooled together with the money of other investors and then spread out across a whole portfolio of companies, meaning you’re instantly diversified and that your overall risk is reduced.
With the outlook for the UK economy looking a little uncertain right now due to Brexit, I’d also look for a product with a global focus. This might provide some protection in the event of an economic downturn here in the UK.
Low cost
Finally, I’d also want a product that was cost-efficient. While investment fees often seem negligible at first glance, you’d be surprised how much they can add up over time. Keeping investment fees low over a period of 20 to 30 years can literally boost your retirement wealth by tens of thousands of pounds.
A top global equity fund
Putting this all together, if I was investing my first £1,000 today, I’d probably put it in the Lindsell Train Global Equity fund, which is one of the most popular funds in the UK at the moment.
This fund is run by star portfolio manager Nick Train, who has a fantastic long-term performance track record (the fund is up 140% in the last five years), and its fee through the Hargreaves Lansdown investment platform is just 0.52% per year, which is very reasonable, in my view.
With a strong long-term performance track record, a global focus and a low cost structure, I feel that this fund would be a good investment to get my portfolio started.