The best ways to invest £1,000

So, you’ve got £1k to invest. It’s a good position to be in, but it’s important to make your investment decisions based on your individual needs and aims.

Is it about going for maximum growth, creating an emergency fund or paying off debt?

We look at the best ways to invest your £1k below.

When considering investing in your future, the first thing you need to consider is your current circumstances.

What’s going on in your life? What are your objectives — both in the short and long term? Do you already have initial savings built up, or is this the start of your savings habit?

£1k is a healthy sum, which could make a difference in numerous ways.

Here we look at your options and how best to make that money work for you — now and in the future. 

What are your investment objectives for your 1k?

Before rushing into any investment plans, take some time to think about and evaluate your priorities and lifestyle.

Here are some key things to consider: 

• A rainy day fund: It’s worth putting between three and six months’ worth of expenses into an easy-access savings account to cover essential outgoings. This will provide a safety net should your circumstances change unexpectedly.

• Money for major life changes: A good reason for keeping funds in an easy-access savings account is if you have big plans, such as starting a family or moving house.

• Clearing debt: There’s no point in putting all your money into savings if you have expensive debt, such as on credit cards. It would make sense to prioritise paying off this kind of debt.

• Overpaying your mortgage: Paying off a chunk of your mortgage could save you a lot of money in interest, especially if you still have many years left on your term.

Are you happy to have restricted access to your money?  

To get the best returns on your £1k, you would need to consider investing it for at least five years and give up the security of cash savings. 

Unlike a cash savings account, investments can’t usually be dipped into at short notice without the risk of losing money if markets are down when you withdraw.

That’s why many advisers recommend only investing funds you’re confident you won’t need for day-to-day living costs or upcoming expenses.

By locking your money away for the medium to long term, you give your investment the best chance to ride out short-term market fluctuations and potentially achieve greater growth.

However, if you think you might need access sooner, for example, for a house deposit, a wedding, or emergency costs, it may be wiser to keep some or all of your £1k in a more accessible savings product.

What are your investment options?

It’s really important to remember that investing money always carries an element of risk.

It’s always a good idea to speak with a financial adviser about your investment plans before making any commitments.

Here are some of the established ways to invest £1k. 

• Stocks & shares ISAs: Invest your £1k in a stocks and shares ISA, and you won’t pay income tax or capital gains tax.

• A pension: This is a good way to save for your retirement as you can get tax relief on anything you pay in, within certain limits. This could give your £1,000 an immediate boost, but you must be happy to lose access until at least age 55. 

• Shares: Buy stocks and shares in a company and you’ll earn money if the value of the company rises. There’s some risk involved if the company performs poorly, but if it does well, you could benefit from growth and dividend payments.

• Bonds: These are issued by companies or the government as a kind of debt. Essentially, they pay interest on the money that investors loan them. Bonds are often considered to be a safer bet than stocks and shares.

• Investment funds: These are a form of collective investment, where you put your capital in a ‘pool’ with other investors. Although you don’t have the same voting rights as you do with shares, the risk is usually lower as you’re investing in lots of companies instead of a single one. 

What is your risk appetite?

Before making decisions about investing your £1k, you need to be clear about how much risk you’re comfortable with.

How do you feel about the prospect of potentially losing money, and how much can you afford to lose? 

It’s possible that your £1k could rise and fall in value, so you need to be honest with yourself: are you comfortable with this, or would make you anxious? 

If stock market volatility makes you nervous, it might be worth considering a savings account.

Fixed-rate bonds provide much greater security and typically offer higher interest than current accounts, so you’ll know how much your £1k is going to be worth at the end of the term.

What would the returns on a 1k investment be?

Below, we show what the prospective growth of your 1k could look like with the effect of compounding.

1k with a £250 monthly contribution

1k with a £500 monthly contribution

1k with a £1,000 monthly contribution

Should you speak to a financial adviser?

It’s a good idea to seek professional advice when deciding how to invest a lump sum — especially if you’re new to investing.

A financial adviser can take an impartial, expert look at your circumstances and suggest the best way forward.

They will also know what the current investment trends are, including what’s working and what to avoid.

An adviser can remove the hassle and doubt involved in making a decision on your own. 

Establish your personal goals, consider how much risk you can afford and are comfortable with, do some research, and talk to a financial adviser.

Then with a clear head, invest your £1k your way.