Given that I spend my days writing about investing, one question that I often get asked by friends, family, and acquaintances is: “How should I invest a small amount of money today?” It’s a tough question to answer because everyone’s financial goals are different, and the kinds of investments that I like to hold in my ISA aren’t necessarily going to be suitable for everyone. That said, if I had to invest, say £1,000, today, here’s what I’d do.
The right account
The first thing I’d do is open a tax-efficient investment account. I’d do this through Hargreaves Lansdown (disclaimer: I’m a Hargreaves Lansdown shareholder) as I think its investment platform is brilliant, and the customer service is excellent.
If I wanted an investment account that allowed me to access my money at any time, I’d open a Stocks & Shares ISA. In this type of account, all capital gains and income are tax-free and you can contribute £20,000 per year.
However, if I was saving for retirement, I’d either open a Self-Invested Personal Pension (SIPP) or a Lifetime ISA (this is only open to those aged 18-39). The former comes with tax relief meaning that if you put in £1,000 the government will top up your contribution by another £250 (higher-rate taxpayers can claim more tax relief), while the latter comes with 25% bonuses on contributions up to £4,000 per year. Capital gains and income are tax-free in these accounts too.
Choosing my investments
Once I had my account open, I’d look to deploy my money into the stock market, as the stock market is a proven long-term wealth generator. While many investors prefer to invest in stocks listed in their home country, I’d want some exposure to international stocks too as many top companies are listed overseas.
Now, £1,000 is not really enough to buy individual securities because trading commissions will hurt your returns. For example, if I wanted to buy 10 stocks to diversify my portfolio, commissions would be around £120, meaning I’d be down 12% before I’d even started.
So, what I’d do is invest in funds. This is where your money is pooled together with the money of others and managed by a professional fund manager. Through Hargreaves Lansdown, you can invest in funds from as little as £100.
Personally, I’d invest my £1,000 into the following three funds:
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Franklin UK Rising Dividend fund – £400
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Fundsmith Equity fund – £300
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Lindsell Train Global Equity fund – £300
For my UK equity exposure, I’d go with the Franklin UK Rising Dividend fund. This invests in UK-listed dividend-paying companies, many of which are in the FTSE 100. It’s been a solid performer over the last five years, returning around 48%, compared to 30% for a FTSE 100 tracker.
The next two funds I have listed are both global equity funds, meaning they invest internationally. Both have a focus on high-quality companies. Over the last five years, these funds have returned around 160% and 170% respectively.
Owning these funds would give me a nice mix of UK-listed dividend stocks such as Shell, Unilever, and Reckitt Benckiser, providing stability for my portfolio, as well as plenty of exposure to faster-growing companies listed internationally.
Once my investments were set up, I’d hold for the long term and regularly add to my funds when I had more money to invest. As I always remind those who ask me how I’d invest £1,000, investing is a long-term game.