How I’d invest £1,000 right now

Strategic diversification between bond funds and high-growth tech shares should be an appropriate strategy for any £1,000 investment.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It wasn’t too long ago that I started investing in stocks with precisely £1,000 in my account. Foolishly, I put half of that amount into one stock. Luckily, that stock turned out to be ARM Holdings (now private) and I profited from it immensely. However, things could have easily gone the other way. 

Now, I know just how risky it can be to make the wrong bet and just how rewarding it can be to take the right steps and apply the dynamics of compounding over the long term to create sustainable wealth.

With that in mind, here’s what I would do if I was starting all over again with just £1,000. 

Pick a goal

There’s no point in investing without a specific end-goal in mind. Randomly picking stocks from different industries with different characteristics will ruin your long-term performance. Instead, think of your money as a tool that you can leverage to create a specific outcome. 

If you’re looking to protect this amount, you may want to take a closer look at fixed-income exchange-traded funds that offer a steady return. Vanguard’s U.K. Short-Term Investment Grade Bond Index Fund is a good option. 

However, if you’re looking for higher income, you may want to focus on high-yield dividend stocks. According to fellow Fool Rupert Hargreaves, the top 10 dividend-paying FTSE 100 stocks offer an astonishing average yield of 8.8%

However, even an 8.8% yield on £1,000 isn’t good enough for me. I prefer companies that hold onto their cash and reinvest it in a business with stellar potential for growth. Software firm Kainos Group, for example, has been expanding its asset value by roughly 26% since 2013

At that rate, £1,000 could turn into £10,000 in 10 short years. That’s the sort of bet I like. 

Diversify

Once you’ve figured out if you’re a conservative investor seeking regular income or a growth-hungry investor looking for wealth creation, the next step is to minimise your risk of losing money. 

The easiest way to do this is to spread your bets. Don’t make the same mistake I did and pour half your capital into a single stock. Instead, aim to spread the £1,000 evenly between six to 10 different opportunities. This limits the potential downside for your portfolio.

But don’t over-diversify

Most financial advisers are quick to point out the value of diversifying your portfolio. However, very few would warn you against over-diversifying. Spreading yourself too thin isn’t as risky as not diversifying enough, but it can impact your long-term performance. 

Research indicates that the impact of diversification diminishes after the 20th stock. Which means there is very little difference in the amount of risk exposure for a portfolio of 20 holdings compared to one with perhaps a 1,000 holdings.  However, a 1,000-holding portfolio is much more complicated to create and manage effectively. 

Don’t waste your time and effort. Pick a handful of excellent stocks and watch them closely. 

Foolish takeaway

If you’re just getting started with investing in shares, I recommend picking a long-term strategy for your investments and spreading your bets appropriately.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

VisheshR has no position in any of the shares mentioned. The Motley Fool UK has recommended Kainos. 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »