Investing £1,000 for the first time can be a daunting experience. That’s because there’s a wide range of assets one can potentially buy into.
Personally, if I was investing my first £1k today, I’d put my money into the stock market – the greatest wealth creation machine of all time. And this is how I’d go about doing it.
I’d start with a Stocks and Shares ISA
The first thing I’d do is open a Stocks and Shares ISA with a reputable provider such as Hargreaves Lansdown, AJ Bell, or Interactive Investor.
The beauty of these accounts is that they offer access to a broad range of stock market-based assets including shares, funds, investment trusts, and exchange-traded funds (ETFs).
Additionally, all capital gains and income generated from investments within these accounts are sheltered from the tax authorities. This is a big plus.
Funds make investing easy
With only £1,000 to invest, I wouldn’t look to buy individual stocks immediately (there’s plenty of time for this later). Instead, I’d look to put my money into funds. This approach would give me diversified access to the stock market (lowering my risk) at a relatively low cost.
One fund I’d certainly consider is the Vanguard FTSE Global All Cap Index. This is a low-cost passive fund that tracks an index comprising large, mid-sized, and small company shares in developed and emerging markets around the world. Overall, the index includes over 7,000 stocks.
With this product, I could get exposure to some great companies. As of 30 November, the top holdings in the FTSE Global All Cap Index included Apple, Microsoft, Amazon, Alphabet, and Tesla.
And I could get this exposure at a very low cost. On Hargreaves Lansdown, net ongoing charges for this fund are just 0.23% per year (I’d also need to pay platform fees).
Another fund I’d consider for my first £1k is Fundsmith Equity. This is an actively-managed one meaning that a portfolio manager (Terry Smith, in this case) picks individual stocks for the fund.
What I like about this fund is that it focuses on high-quality, financially-strong businesses. Names in the top 10 holdings currently include Microsoft, LVMH, and Estée Lauder.
I also like the long-term track record here. Since its inception in 2010, it has beaten the overall stock market by a wide margin (past performance is not an indicator of future performance, of course).
On the downside, fees are a bit higher at 0.94% per year through Hargreaves Lansdown.
Managing risk
It’s worth pointing out that both of these funds could lose some value in the short term if the stock market was turbulent. I’d have to be prepared for this.
One thing I could potentially do to protect myself here is invest my £1,000 in several instalments to ‘average in’ to the market. For example, I could invest £250 every month for the next four months. This approach would reduce the risk of investing just before a large market fall.
A long-term approach
Finally, I’d take a long-term view. I’m talking five years or more.
In the short term, the stock market can be very unpredictable. However, over the long run, it has consistently produced strong returns of around 7-10% per year, helping a lot of people generate wealth.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post How I’d invest £1,000 today if I was starting a portfolio from scratch appeared first on The Motley Fool UK.
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More reading
- New Year’s resolution: how I’d invest in a Stocks and Shares ISA to build long-term wealth
- 2 passive income ideas I’d use to generate £250 a month in 2023
- Here’s how I’d invest £5,000 in UK stocks to earn a 2nd income
- With no investments at 30, a stock market correction could be a blessing in disguise!
- Is this FTSE share a must-buy this Christmas?
Ed Sheldon has positions in Alphabet, Amazon.com, Apple, Hargreaves Lansdown Plc, Microsoft, and Fundsmith Equity. The Motley Fool UK has recommended Alphabet, Amazon.com, Apple, Hargreaves Lansdown Plc, Microsoft, and Tesla. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.