11 Ways To Invest Your First £1,000
So, you’re ready to invest your first £1,000.
First off; CONGRATULATIONS!
But let’s keep the celebrations short and get your money working for you ASAP.
So, where’s the best place to invest your savings?
Having never invested before, you’re understandably nervous. You don’t want to lose money that you’ve worked so hard to save.
If you’ve asked for advice, you’ve probably been met with a dozen opinions – each conflicting and equally bamboozling.
In this post, I’ll cut through the bullshit and give you 11 practical ways to invest your first £1,000.
Should You Be Saving Or Investing?
There’s a difference between saving and investing. What you do with your money depends on when you need it.
If it’s in the near future – such as if you’re saving for a house deposit, new car, or wedding – then save your money and don’t invest it.
Investing requires locking your money away for years, and there’s the risk your investment will go down in value – especially in the short-term.
If you’re going to need your money soon (like, in the next five years), you’re better off sticking it in a high-interest savings account.
Also, if you don’t already have savings set aside for an emergency, then prioritise that. Aim to have 3-6 months of your living costs stashed away in a savings account.
Once you’ve built your emergency fund, then let’s get your grand invested…
1. Clear Debt
Okay, okay, I said we would invest your money, but I told a white lie.
But with good reason…
One of the smartest things you can do with your savings is to pay down bad debt.
If you have debt, any investment you make would have to achieve a greater return than the interest rate on your debt to make sense.
If you have a personal loan at 5% APR, then any asset you buy would need to cashflow at least 5% to service the loan – dangerous territory, don’t even think about it.
Paying off borrowing isn’t the sexy strategy you were looking for, but it makes the most financial sense.
2. High Interest Savings Account
This options for the cautious investor, dipping their big toe into the complex world of investing for the first time.
Long term, you’ll want to move away from savings accounts as they offer no capital growth and paltry returns – but they’re a start.
The best performing savings accounts are usually found from online banks.
I save with Marcus (from Goldman Sachs). Their online account offers 1.3% p.a. – although the cheeky bastards have recently cut their rate to 1.1% due to COVID.
Shop around for the best rate on offer at the time, and don’t just go to your current bank. Your ten years of loyalty counts for nothing.
3. Index Funds
Index funds are a great way for novice investors to enter the sharemarket.
What’s an index fund?
Well, an index fund holds a bunch of company’s shares that are grouped together because of their location, industry, growth prospects, or dividends.
The S&P 500 is the most well-known index. It contains the 500 biggest companies in America. When you buy an S&P 500 index fund, you’re buying (a very tiny slice of) ownership of businesses such as Apple, Microsoft and McDonald’s.
By spreading your money across hundreds of companies, you reduce the risk of any single company going bust – and wiping out your capital.
Index fund investing also doesn’t require you to have specialist stock market knowledge.
In fact, the best strategy for index funds is to set up a standing order and keep investing every month no matter what the market is doing.
This method of investing – known as pound cost averaging – won’t outperform the stock market, but you’ll achieve its long-term average return (which is a very healthy 10%).
4. Peer to Peer Lending
Peer to peer lending (or P2P) is when you loan your money to individuals, companies, or developers.
The longer you lend your money, the better the return.
For example, Assetz Capital offers rates of:
- 3.75% – quick access account
- 4% – 30 day access account
- 5.75% – 90 day access account
(Correct as of 26/08/20)
Those returns look juicy when you compare them to the 0.1% offered by high street banks, but there’s more risk with P2P.
The FSCS doesn’t protect many peer to peer platforms. If the platform went bust, you could lose some or even all your investment.
That said, peer to peer lending platforms are very cautious in their lending, and they have a low default rate.
I’m currently achieving a 5.25% return with Assetz Capital and 3.5% with Ratesetter.
5. Bond Funds
Bonds are like an IOU. The money you invest won’t grow, but you’ll receive an income in exchange for lending your money to the government, local councils, or companies.
Generally, the safer the borrower, the lower the interest rate.
The UK government is seen as a safe borrower – they can always print more money after all – which is why UK government bonds (known as gilts) only offer a measly 0.36% return over 10 years!
Companies tend to offer the highest return (6-8% per annum), but there’s a greater chance they’ll default on the loan.
Just like it’s not wise to invest all your money in a single stock, you should spread your money across several bonds, which means buying into a bond fund that holds hundreds of debts.
6. REITs (Real Estate Investment Trusts)
£1000 isn’t going to get you far in property. Even the cheapest buy-to-let is still going to require £20k upfront.
However, REITs allow you to invest in property with a much smaller starting pot.
REITs are traded on the stock market just like shares. Investor’s funds are pulled together by the REIT company to purchase high-quality properties in premium locations likely to experience good capital growth.
These top calibre properties are rented out to corporate tenants on long-leases, guaranteeing security of income.
And you get a big slice of that income – by law REITs are required to pay out at least 90% of their taxable income to shareholders in the form of dividends.
That’s why REITS make fantastic cashflow investments, offering yields of 6% or more!
REITs also have several other advantages over owning property directly:
- They can be easily bought and sold on the stock market
- You don’t have the high transaction costs of buying property
- And you don’t have to deal with the maintenance and tenant dramas that come with traditional BTLs
Arguably, the smartest way you could invest your money is in your education.
£1,000 could buy a lot of books, online courses, and allow you to attend many conferences and meet-ups.
If you apply what you learn, you could multiply your investment a bazillion times.
Here’s a couple of examples:
Spend £1,000 buying all the best-selling property books on Amazon, attending your local property investor meet-ups, and taking a couple of investors out for a coffee. The knowledge you gain will allow you to buy a killer deal that instantly provides £20k in equity.
OR, you could spend £1,000 gaining skills or a qualification that increases your earning potential.
To use myself as an example; I started studying to become a mortgage broker during lockdown.
All in, it’s cost me £650 to get qualified. The average mortgage broker salary is £36,670 per year… makes sense to me.
8. Growth Stocks
I don’t pick individual stocks because I don’t have the time, knowledge or desire to do it intelligently.
Investing in companies because you have a hunch they’ll do well – which is what most amateur investors do – is gambling.
But no matter how much I bang on about the perils of picking individual stocks, the lure of investing in their favourite companies is too much for some.
Maybe it’s the rush of logging into your account and seeing you’ve made £100 overnight. Or perhaps you believe in a company and want to support it.
Whatever the reason, and if I can’t persuade you to invest in index funds instead, can you at least spread your money across several companies?
I’d hate for you to lose all your money if the single company you’ve invested in tanks.
Your £1,000 isn’t going to stretch far, but I’d try to purchase at least three stocks that are on an upward trajectory and are likely to keep on growing.
And if you put a gun to my head and asked me to pick which ones, I’d go with Apple, Tesla and Zoom.
9. Take A Punt On An IPO
Before a company lists on the sharemarket for the first time, you have a chance to purchase its shares by an initial public offering (IPO).
Often (but not always), a company’s share price will rise on the first day(s) of trading – presenting you with an opportunity to make a quick buck.
This strategy technically isn’t investing, and it’s also high risk.
But if you like to roll the dice, there’s a chance to make some fast cash.
Hospitality company, Airbnb, is planning to launch to the public at the end of this year. There’s no certainty over the company’s valuation or the initial investment required, but it’s one to keep your eyes on if you’re the gambling type.
10. Start A Pension
If your self-employed or don’t already have a workplace pension, then setting up a pension is a wise use of your £1,000.
Pensions are a long-term investment. Anything you contribute to your pension can’t be accessed until you’re 55.
This sounds like a drawback, but it’s actually a massive advantage as it “forces” you to save for your retirement.
And by regularly contributing to your pension throughout your working life, you’ll provide financial security and a nice lifestyle in your golden years.
But, I’ve not even got to the best bit yet…
Contributions to your pension are made with your pre-tax wages!
That means that if you’re a basic rate taxpayer, a £100 contribution to your pension actually only costs you £80 of your after-tax wages (the rewards for higher rate taxpayers are even better).
The government essentially gives you a £20 reward for being responsible and putting money aside to fund your retirement.
It’s not often you get free cash from the government, so take advantage of it!
11. Start a Side Business
If you’ve got the time, starting a side hustle would be a great use of your money.
Investing £1,000 into a side hustle could quickly build a business that returns £1,000 (or more) every month.
A side business could also be started alongside your day job. So, not only is it not a big investment, it’s also not a big gamble.
Your side hustle could be literally anything. But I’d advise picking something you’re skilled at or are interested in learning, you can get up and running quickly, and that there’s a demand for.
Here’s a couple of ideas to get your creative juices flowing:
Freelance Writing – This is my current side hustle. I write finance articles for small to medium businesses such as accountants or fintech start-ups. I make about £200 a month writing for clients.
Outdoor Maintenance – I have a friend that works shifts on the railway. The three days a week he’s not working at his job, he does exterior cleaning and gardening. You’d be surprised how much he makes.
Civil Celebrant – My mother in law is good at public speaking and loves to help people. She just launched her own business where she conducts wedding ceremonies, funerals and other types of memorials. Bit of a left-field one, but get’s you thinking what’s possible.
Wrapping It Up
Hopefully, these 11 ways to invest your first £1,000 has helped you navigate the minefield of personal finance and investing.
There’s not a single option that’s a clear winner. How you invest your money will depend on your available time, interest in investing, risk tolerance, and goals.
Once you’ve invested your money, make sure to take a moment to celebrate. You’re now on the path to financial freedom.
BUT… don’t celebrate too long. Let’s keep the momentum going and press on with building your empire.
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Hi! I'm Jamie
I’m a 30-something money blogger that writes about saving, frugal living, investing and entrepreneurship.
I achieved financial independence at 30 through hard work, saving and learning to invest.
On this blog, I share everything I've learned about money to help you build a life you love, free from money worries.
If you'd like to achieve financial freedom, escape the 9 til 5 and spend your days however you want, then I know you'd love our weekly newsletter.
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