Earlier this week, a reader emailed me asking for advice on how to invest her first £1,000. Now, I’m not a registered financial adviser, so I’m not allowed to hand out personal financial advice.
What I am able to do, however, is explain (with the benefit of over 20 years’ investing experience) what I would do if I was investing my first £1,000 today. With that in mind, here’s a look at how I’d invest my money.
Investing my first £1,000
The first thing I’d do is open an account with a reputable online broker. I’d go with Hargreaves Lansdown (disclaimer: I’m a shareholder), as I’ve found their investment platform to be the easiest to use and the most reliable. Hargreaves’ customer service is also brilliant, which is a good thing if you’re investing money for the first time.
Then, I’d open a Stocks and Shares ISA. This is a flexible investment account that enables you to invest in a wide range of shares and funds. The main advantages of investing within this type of account are that:
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All capital gains and income are tax-free
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You can access your money at any time
How I’d invest £1,000
If I was investing my first £1,000, I’d put my money into a fund. With funds, your money is pooled together with the money of other investors. It’s then managed by a professional portfolio manager who will spread the money over many different companies. This means it’s a less risky approach than picking an individual stock. Investing in funds is generally more cost-effective than buying individual shares if you’re only investing small amounts.
The fund I’d invest in is Fundsmith Equity. This is a global equity fund, meaning that it has exposure to leading companies listed all around the world (including the UK). Stocks it holds include Microsoft, PayPal, Unilever, and Reckitt Benckiser. This particular fund has a great long-term performance track record. Over the last five years, it has returned about 90%. Past performance is no guarantee of future performance though.
My approach to investing £1k
In this market, I wouldn’t invest the full £1,000 all at once though. Right now, there’s an enormous amount of economic uncertainty due to the coronavirus and stocks are in a bear market. While the market has fallen a long way over the last month, there’s a chance it could fall further.
So, what I’d do, is invest £250 of that £1,000 every month for the next four months. That way, if shares did fall further, I’d be able to invest money at the lower prices.
Finally, and this is really important, I’d leave that money for at least five years. Investing is a long-term game. In the short term, we have no idea what the stock market is going to do. Over the long run, however, stocks tends to rise. Leaving that £1,000 for five years would give the stock market time to recover, and give my investment time to rise.