Now might seem like a bad time to start investing. However, the recent stock market crash has thrown up some fantastic bargains for long-term investors. These companies might face an uncertain outlook in the near term, but they could see strong growth over the long run.
As such, if you’re looking to start investing with £1,000 today, now could be a great time to snap up a basket of these undervalued businesses.
Start investing with £1,000
As the coronavirus crisis rumbles on, the global economy is facing an uncertain future. Unemployment is surging, bad debts are rising, and many companies are struggling to stay afloat.
Nevertheless, some businesses are coping better than others in the storm. Blue-chip champions, such as Unilever and Reckitt Benckiser, have seen sales of some products rise. Meanwhile, FTSE 100 dividend giant Legal and General, seems to be shrugging off the worst of it.
These companies could be excellent long-term investments if you want to start investing with single stocks.
However, picking single stocks can be a time consuming and risky process. It can also be costly. While some online stock brokers offer commission-free trading, others charge per deal placed. These costs can add up if you’re placing lots of small transactions.
Therefore, if you’re looking to start investing with £1,000, it could be better to buy a low-cost index fund, or other fund offerings.
Buying funds
The great thing about funds is that you don’t have to do any work. When you’ve picked a fund, all you need to do is click ‘buy’, sit back, and watch your money grow. That makes them a great product to use if you want to start investing.
Funds also buy a basket of stocks. This diversification helps minimise the risk of loss in the portfolio. Even if one or two companies go out of business, with a diversified portfolio, the impact should be minimal over the long run.
One of the best investment funds on the market at the moment is Fundsmith Equity. Managed by legendary fund manager Terry Smith, the equity fund seeks to own the best businesses in the world. Its historical performance suggests it’s quite good at meeting that goal.
If you don’t want to pick a fund manager, a low-cost FTSE 250 or FTSE 100 tracker fund could also be a good product to start investing.
These funds only seek to track their underlying index. So there’s no risk the fund manager will make a mistake or take on too much risk like Neil Woodford did. What’s more, as these funds only track the underlying index, they tend to be quite cheap.
Today, you can buy a tracker fund with management fees of less than 0.2% per annum, compared to nearly 1% for active funds. This can have a significant impact on your investment returns over the long term.
If you want to start investing today, the best solution may be a combination of passive and active funds. That would help reduce costs and allow you to benefit from the advantages of having an active investment manager at the same time.