£1,000 looks a good chunk of money to spend on a frivolous weekend out, but if you are interested in protecting your future and in having a good amount of money at retirement, then investing that little £1,000 might be the best life decision you’ll ever make. So, while that designer handbag looks incredible and you need to get your hands on it asap, you might want to put that money away for a few minutes as we introduce you to some of the smartest investment moves you could make with £1,000.
So, let’s just jump right into it;
The Best Way of Investing £1,000 in 2021
First, pay down your debt
When it comes to investing, the best thing you need to do first is to pay down your debts. That £1,000 might not feel like so much, but when you have debts to pay, and you also need to make the smartest decision about your money, then paying down your debt is one of the smartest financial decisions you will ever make.
Typically, you should put that £1,000 to pay off your credit card debts. Once you are out of debt, you can invest the remaining amount in a low-interest mortgage or even a retirement fund.
As long as you have debt in your name, you shouldn’t invest that money first. Pay your debts, then work on making sure that your finances are in order and that you can comfortably live on what you have without going on to get more credit card debts.
Put Your Money Aside for the Rainy Days
You’ve probably heard this ten of times, but have you really had the chance of acting on it. Are you making conscious decisions to put away some money for emergencies? Can you fix the car if it breaks down before your next salary checks in? The unfortunate truth for most of us is that we don’t have enough money stashed away for the tough days.
So, if you have £1,000 and are trying to find the best way of using that money without wasting it, we recommend finding high-interest savings account to be your emergency account. Just make sure that the funds in the account will be accessible to you at any time.
At the end of the day, you don’t want to find yourself strapped for cash and unable to do something important, or even worse, having to get one of those high-interest payday loans offered online, only to be left servicing the same loan for months. Therefore, if your bank account balance, specifically the emergency fund account, doesn’t have enough money to get you through the tough times, hold off on that investment that ties down your money. Sometimes, the best investment you will make is the one that involves putting your money in a savings account.
Now that we have the main things out of the way let’s take a look at the other things you need to take into account before you invest that £1,000.
Decide how long can you put that money away for
Yes, you have £1,000 lying somewhere right now, and you are not exactly sure about what to do with it, but do you really have the financial capacity to lock away that money for 5 or 10 years?
The rule of the thumb, when investing in stocks/ shares, being able to put aside that £1000 or even £500 for 5 years is a good start because it not only gives your investments time to grow, but also stops you from being a forced seller. At the same time, being able to commit means that your investment will have time to grow. So, even if the market takes a dip in the first, second or third week, month, or year after you decide to invest, your investment will still have time to recover. The truth is that the market experiences ups and downs all the time, and you could lose that money at any moment. However, you could increase the odds of earning good returns if you don’t sell your shares too soon. Essentially, investing for a long time, say 5 or 10 years increases the odds of the stock market’s improved performance, and the outcome will be generally better than if you’d held on to the cash.
To back this up, a very well-respected survey that was conducted by Barclays reported that in over any 10-year period since the beginning of the stocks market, investors and companies selling their stock are highly likely to perform better trading in shares than holding on to cash.
Choose What You Wish to Invest In
You only have £1,000, what are you going to invest that money in? Well, knowing how confusing the answers to this question are, here is our first piece of advice – do not gamble your money away. This means that you should steer clear of the crypto-currencies that have been a buzz the past few months – it might look and feel lucrative, but a closer look reveals that this crypto business is rather shady and the system it’s built on doesn’t really feel like a reliable financial system you should try. Bitcoins aside, you need to be smart about where you put your money.
For starters, buying into the actively-managed funds is a lot like buying the ready-made shares in baskets; these are the shares that have been handpicked and then blended by the professionals. Good examples of the carefully selected stocks include stocks and funds for companies like Amazon, Microsoft, Heineken, or Apple, among other top brands.
The most important thing you need to remember as you invest in shares and stocks is that these investment options represent some of the most volatile mainstream investment options and their values jump up and down all the time. But even with the volatility, investing in shares is a good idea if you are looking for a long-term investment option.
Besides shares/ stocks, you may also want to consider the government bonds or the bonds that are offered by the companies that often pay investors income for loans. Although the government bonds are largely safe and stable, some external factors might affect how the bonds fare on the markets.
When looking for the investment instrument that would work best for you, you have to ask, ‘how much will I make from this investment or that?’ You also need to know how much you’d lose since investing is always about the numbers.
With this in mind, a simple rule of the thumb you must employ is the one that requires you to ask where that balanced portfolio of shares would make you at least 5% in earnings, in a year, after the fees are deducted.
Your potential earnings could definitely go higher if you invested in the riskier options, but whether you can tolerate that risk or not depends on your risk profile and how much you’d be comfortable losing.
Speaking of volatility and potential earnings, understanding how the stock market works is a smart investment move since. But you must be ready for some bad years – for example, the FTSE 100 fell by about 30% in 2008, but the stock index recouped most of the losses in 2009. So, before you invest, be sure that you are ready to lose some and gain some others.
Create the right investment account
The first step to investing £1,000 is creating a tax-efficient investment account. But since there are several investment accounts for you to choose from, we recommend that you settle on an investment account with a good reputation, a brilliant system, and the best customer services.
One of the best investment accounts for you to put your money in an account that allows you instant access to your money whenever you wish to. A Stocks & Shares ISA would be the right type of account in such cases. The other good thing about this account is that all the income and the capital gains are tax-free, and you can contribute up to £20,000 each year.
On the other hand, if you are interested in saving for your retirement, you might want to open either a self-invested personal pension or a SIPP or even the Lifetime ISA account. The only catch with the Lifetime ISA account is that this account applies only to individuals aged between the ages of 18 and 39 years. SIPP comes with a tax relief benefit, which means that putting away that £1.000 you are not sure what to do about earns you another £250, and if you are a higher-rate taxpayer, then you get to claim even more money in tax reliefs. Lifetime ISA, on the other hand, comes with 25% in bonuses for all contributions over £4,000 each year.
The best bit s that both accounts come with tax-free benefits on capital gains returns and also on the income earned.
How to Choose the best stock investment options for you
Once you have the right investment account setup or at least, after you’ve created the right account that matches your needs and goals, then you should settle on the right investment option that works for you.
For instance, if you are interested in investing in the stock market, you need to make sure that you choose the right stocks, keeping in mind that your investment in stocks is a long-term investment option.
But this is not everything you need to keep in mind – there are other important factors that you must think about. These include:
How you’d like to invest – are you clueless on all matters investing and would like someone to do the hard work for you? Do you have some idea of what you want to do, but still need some help? Or are you the kind of investor willing to do it all on their own?
Well, the good news is that regardless of the category you fall into, you will find an ideal the right investment account to work with. For example, if you are super-confused and would feel better having someone else doing all the work for you, then your investment account options include Wealthify, Vanguard, and Nutmeg. Out of these three brands, Nutmeg uses a quizzical approach to help you identify the best investment for you out of the options in their investment baskets. Vanguard is known for its low-cost investment managers, and they run a multi-asset investment fund that’s attractive to investors interested in saving.
Invest in a retirement account
Your retirement age could be 20 or 39 years away, but the truth is that your £1,000 could be £2,000 in the next very few years, if only you invested it in the right place. You need to identify the best pension plan for you and then start saving. Knowing how much your retirement income is always a good place to start from where you can check out the state pension available to you.
ETFs (Exchange-Traded Funds) present another great investment opportunity for you. Now, while most of the index and mutual funds require a huge sum of money upfront, this shouldn’t stop you from investing – (i) you can either top up on the £1,000 to invest in the mutual funds offered by index and mutual funds or (ii) you could invest in the ETF index funds. The ETFs are affordable to the small-scale investors, and the best part is that they are often commission-free, with a very low minimum investment amount.
Invest with Robo-Advisors
If you are not sure about the whole investment thing, but still wish to invest, you might want to try out the robo-advisors. These are robot-powered/ AI-Powered investment managers. Though they aren’t any fun, they are accurate, and you can put in little money at a time as you try to get your feet wet.
Besides the Robo-advisors, you also get to invest using different investment apps.
If you choose this option, beware of the brokerage commissions, always research the companies behind the stocks suggested, and invest in retirement first, then the low-cost index funds or ETFs.
While £1,000 isn’t a lot of money, it’s money worth investing, and your future self will thank you for investing that money. Just make sure that you understand the stocks you are investing in and opt for the options that match your long term goals.