If you have £1,000 saved, and want to start investing your money, there are thousands of investments out there to choose from, which can be daunting for first-timers.
So, with that in mind, today I’m going to explain how I would start a £1,000 portfolio to help you navigate the investment world.
Starting small
A £1,000 investment isn’t really enough to build a well-diversified portfolio of single stocks, and with this being the case, I think it is better to buy a low-cost index tracker fund instead.
A low-cost tracker will give you exposure to a broad range of companies in different industries at the click of a button, without you having to go out there and build a portfolio yourself.
High risk, high reward
Which tracker fund you decide to buy depends on your risk tolerance. For example, if you’re investing for the future, with a multi-decade time horizon in mind, then the FTSE 250 might be the best option for you.
This index offers what I believe is the perfect blend of income and growth. It is made up of the UK’s top 250 mid-cap stocks, which tend to be more volatile than their large-cap peers in the FTSE 100, but have historically produced better growth and returns for investors.
The index’s long-term return has averaged 9% per annum although it is not uncommon for the index to fall 10% or 20% in just a few months (between June and December last year it collapsed 21%). That’s why I think the FTSE 250 is only suitable for investors with a long term outlook and high risk-tolerance.
Blue-chip income
If you don’t think you can deal with this level of volatility but are still looking for high single-digit returns over the long term, then I believe a FTSE 100 tracker is the next best option.
Over the past decade, the returns from this index have been slightly lower than those of the FTSE 250, by around 3% per annum, but the ride has been a lot smoother.
For example, during the past 12 months, the FTSE 100 has added 8.1% compared to a gain of just 0.8% for the FTSE 250. Also, the blue-chip index supports a dividend yield of around 4.3%, nearly double that of the FTSE 250.
Slow and steady
If risk is really not your thing, and you only have a few years of saving ahead of you, then I highly recommend buying into Vanguard’s LifeStrategy 40% equity fund.
I like this investment because it offers the perfect blend of stocks and bonds. It is 40% international equities and 60% bonds, providing a mix of steady income with a small capital growth kicker. This combination has helped turn a £10,000 investment in May 2011 into £16,800 today, and there has been relatively little volatility along the way.
LifeStrategy
So, if you are looking for an instant portfolio of stocks and bonds with a global focus, then I highly recommend buying the LifeStrategy fund. With an annual management fee of just 0.22%, it gives you an instant portfolio at the click of a button with no need for any additional input on your part.