How to invest £1,000: where the experts would put their money

A £1,000 lump sum may not seem like a lot to invest but it can still make a difference to your long-term financial plan. We asked three experts how they would invest £1,000.

money going into golden piggy bank
(Image credit: Getty Images)

There are plenty of options when looking to invest money depending on how much you can put aside.

Many investment platforms will let you put money into the best funds or top stocks from as little as £1 or even £100, but it may be hard to build a diversified portfolio with such relatively small amounts.

A starting sum of £1,000 could be a beneficial way for those trying to work out how to invest. It is enough to spread money across a range of assets and can be part of your ISA allowance, where you can save up to  £20,000 free of tax.

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We asked three experts how they would recommend investing £1,000.

Reason to invest £1,000

Dan Coatsworth, investment analyst, AJ Bell, says...

Before investing any amount, Coatsworth suggests thinking about the reason why you want to invest, what you want to get out of it, the time horizon and how much risk you are willing to take so you can formulate a plan.

If the money is for a mortgage deposit, he suggests a Lifetime ISA to benefit from the 25% annual government bonus. However, if you want the flexibility of being able to make withdrawals without penalty, he suggests a stocks and shares ISA.

There might be a temptation to spread the £1,000 investment across multiple investments such as 10 shares or funds, adds Coatsworth.

 “While that would create portfolio diversification and spread risks around, it would also rack up 10 sets of dealing charges and create a big list of investments to monitor going forward,” he says.

“It’s important to consider the impact of charges on your returns and how much time is required to manage the portfolio.”

An alternative approach could be to use the £1,000 to invest in either one or two funds and let the fund manager do the stock picking, monitoring and rebalancing work for you.

“That could still provide diversification but only incur one or two sets of dealing charges respectively,” he says.

“One possible starting point might be to consider a low-cost global equity tracker fund which provides exposure to companies around the world.”

A £1k pensions boost

Lisa Johnstone, managing director of VWM Wealth, says...

Depending on when you need access to the money, Johnstone suggests putting money into a pension.

“You will get tax relief on your earned income should you chose to invest into your pension,” she says.

 “You may decide to do this via your workplace pension where your employer may also match your contribution. You could then supplement the lost income with your £1,000.

 “Income tax relief is particularly attractive because making the pension contribution reduces the amount of income you need to pay income tax on and is especially attractive if you are a higher rate tax payer. 

"The downside is you cannot access the pension until 10 years before state pension age for most people.”

 An ISA could be better if you need access to the money sooner.

A cash ISA can secure a return for short-term plans while if you want to invest for a few years over the medium or long term, a stocks and shares ISA could be best for you.

 “This is a good way to diversify risk rather than buying individual stocks which should be avoided,” adds Johnstone.

Invest in a market tracker fund

James Corcoran, chartered financial planner, Lumin Wealth, says ...

Corcoran suggests it may not be worth the hassle of splitting £1,000 across multiple funds to spread your risk, so something like a market tracker fund may be a good option.

 “Rather than your growth being linked to the success of an individual fund manager, your performance will rise and fall in line with the market, and you are keeping costs low,” he says.

“Once you have built up a more significant pot you could consider more complex arrangements, but a tracker fund would be a good option as a starting point.”

With a low level of investment, Corcoran warns it is important to be aware that of the risk of fund values falling.

 “You should ensure you have sufficient cash to cover any upcoming expenses you may have, and any emergencies, such as the loss of a job,” he says.

Marc Shoffman
Contributing editor

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.