How to Invest £1000 UK: Dodge Risks And Aim High

Learning how to invest £1000 UK could be one of the best lessons you ever learn.

They say your first million is always the hardest. After that, all you’re doing is repeating the same process – only with more leverage and resources.

The same can be said of investing £1000.

The chances are that if you’re only investing £1000 then you don’t have that much cash to spare compared to other investors. You’ve saved hard and even if you’re successful the margins may only be quite small. That means you need to be smart.

On the other hand you can also be bold. Anyone with significant funds invested in just a few assets also has a lot more to lose. Losing £1000 may seem bad to you, but its fair to say you could probably get another £1000 a lot easier than another £20,000.

Of course a lot of this comes down to risk tolerance. If losing your £1000 wouldn’t be that bad to you then you can stand a much higher degree of risk and potentially reap higher rewards.

As for myself, I started investing very cautiously – and the results were surprising.

By investing in large-cap FTSE heavyweights I found growth was very low. These stocks are classic dividend stocks as opposed to growth stocks. That means you can be reasonably reassured that you will get 5% in dividends each year, which over time can compound significantly.

However, I also experienced some significant failures.

On the other hand, other portfolios I have held using much riskier assets have proved much more successful. I suffered a loss of 70% in a Canadian cannabis stock, among other similar drops. But just a few wins easily made up for them. How does that work?

Finding Multibaggers

Providing you are sensible and invest only with cash you can afford to lose – no leverage here – then the worst case scenario is the complete loss of your capital.

On the other hand, a winner in this situation is quite easily able to more than double in a short time.

These are known as multibagger stocks. If you’re smart in you’re stock selection then even the best of us will have some catastrophic failures. But just one or two multibaggers can more than offset the difference. That is compounding on steroids as a 100% gain in one year followed by 100% the next means you have doubled your already doubled investment.

Now I can only speak from personal experience and I have not actually experienced a real multibagger. But I have seen a portfolio nearly entirely in the red turned around by just a few star performers.

Now when it comes to how to invest £1000 UK you are left with this difficult decision of low risk and low growth vs high risk and (maybe) higher growth. For me personally, I often find myself reaching a point where I decide that if I only have £1000 to invest then I might as well take a chance on making it worth £10,000 in five years rather than £1300.

You’ll probably end up with a mix of high performers and failures and the average will probably match a market average. This is on the basis of several assumptions that you have a stable income, enough savings in cash to ride out a storm and no major expenses coming up. And no debt of course.

In my experience, an aggressive growth approach worked out better than the market. But market conditions are always changing, so just how representative was my experience?

To tell the truth, in late 2019 I had some big winners including Tesla and Google in my portfolio. But I had started booking viewings to buy a flat in London. I was faced with the tough decision of keeping the stocks and potentially having more money, or losing the lot if the market crashed.

I sold.

Putting all my capital into real estate meant a real home for the next five or ten years. Six months of potential growth wasn’t worth that.

Or was it?

In early 2020 the market went through the roof. That Tesla holding of mine had been volatile throughout the past year and seemed risky but now had I held onto it I would have tripled my money. It sucked.

But remember this – psychologists have shown the pain of losing money outweighs the joy of making the same amount of money. Gaining 20% is pretty nice but losing 20% is a kick in the balls.

So I felt alright. If I were in the market I would have been constantly trying to predict when things would drop. Instead I had sold my winners and was sitting on a pile of cash, while keeping my poor performers in the portfolio which recovered somewhat in that time.

Sure enough, that crash wasn’t far away. In late February Coronavirus hit the markets ending the decade-long bull run since 2008.

But I saw an opportunity. The flat purchase was delayed in the global lockdown and I began investing in one of the biggest digital transformations the world had ever known. I had already owned Zoom stock since its IPO but bought a lot more when I saw its graph in Google Trends – a tool that shows how popular a search term is in Google. That proved very profitable.

My point here is that a growth approach is thrilling but also volatile.

ETF investing

A more sensible way to invest £1000 UK is using Exchange Traded Funds (ETFs). These are collections of hundreds of stocks and so you are instantly diversified. You could invest your whole £1000 in a single ETF and be confident that your risk is reasonably well spread. There are ETFs for all sorts of purposes – from tracking the basic FTSE 100 or S&P 500 to investing in companies benefitting from ageing populations or global water supplies. Want to invest in tech stocks? Try a NASDAQ ETF.

This is a hands-off approach to investing and allows you to very easily capture the market average – which historically has been very good. With single stocks you need to monitor your portfolio closely but that’s not the case with ETFs. Because these are so passive and don’t require much management, their fees also tend to be very low. Some investment funds charge more than 1% a year which can add up to a significant amount and they may not even beat the market average. With ETFs you will match the market that ETF tracks and pay fees of mere fractions of a percent.

Robo-Advisors

On the subject of low ETF fees, that is why many robo-advisors like Nutmeg and Wealthify use ETFs to provide their portfolios. Personally I prefer the control of managing my own portfolio. In case you hadn’t notice I like a very involved and rather risky approach.

But that costs me a lot of time and there have been times I look at my investing profits and wonder if that time could have been better spent.

If I charged myself the hourly rate for my digital marketing job for the time I spent researching stock investing I would probably have lost money. The trade-off is the long term value now that I have these skills and the insights I can share with you on this blog.

If you want the best way to invest £1000 UK then a robo-advisor could well be for you. They take ETF investing to a new level as they will manage your investment across many ETFs, so you in fact have a diversified bunch of already diversified assets.

The downside is that they can be quite expensive. They are cheaper than a “proper” wealth manager and have very low minimum balances. But their fees on top of ETF fees can add up so they are again around the 1% mark.

But you are paying for a managed portfolio then you have the peace of mind that it really is managed. I still have my first ISA in Wealthify with just a couple of hundred in it. But every now and then I get an email stating that they have made some changes to soften the blows of upcoming volatility. If they think they need to move more of their managed portfolios to shelter safely in cash rather than stocks, they probably will.

So if a totally hands-off approach is for you then a robo-advisor could be the best way to invest £1000 UK for you.

Stewart Vickers
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