How to invest £1,000: A simple guide to investing a small lump sum

10 min Read Published: 28 Jul 2022

How to invest £1,000People often assume that in order to be a successful investor, you need a large sum of money to invest. This isn't the case. Beginner investors often start out with smaller lump sums, with some investment platforms even allowing investors to open an account with as little as £1. In this article, we explain the things you should consider before investing, how much you can make by investing an initial lump sum of £1,000 as well as provide some resources and tools on the best way to invest a £1,000 lump sum.

Things to consider before investing £1,000

There are a number of things you should consider before investing your first £1,000. These include:

Have you got any short-term debt?

Short-term debt, such as credit cards and overdrafts, incur high rates of interest and the interest you are being charged is likely to outweigh any gains you make from investing. It is best to pay off any short term debt before starting to invest. Read our article 4 easy ways to clear credit card debt for tips on how to reduce short term debt. If you require additional help, you may want to check out our 28 day financial fitness challenge where we provide tools and resources as well as practical tips to help you get on top of your personal finances.

Do you have an emergency fund?

An emergency fund is a pot of money that you set aside, separate from any savings you may have, that you can access should you suffer financial hardship. An emergency fund can save you from getting into debt and it is sensible to have this in place before you start to invest. For more information as well as some tips on how to build an emergency fund, read our article 'Building an emergency fund, the what, why and how'

Understand investment goals and timeframes

Setting an investment goal will help you to understand exactly how much money you will need and by when. Having a clear idea of what you want to achieve will help guide your decisions and give you a greater chance of building wealth over the long term. Read our article understanding investment goals and timeframes where we explain how to set short-term, medium-term and long-term financial goals. As a general rule of thumb, you should only invest your money if you do not need access to it for at least five years.

Is investing right for you?

Understanding whether investing is right for you is crucial. There are some important questions you should ask yourself. When do you need access to the money? Are you comfortable with losing some or even all of your money? There is nothing wrong with accepting that now isn't the right time to invest and then coming back to it when the time is right. Watch Damien's video 'Is investing right for me' below.

Is £1,000 a good amount to start investing?

There isn't a right or wrong amount when it comes to investing. Some investors start with a large sum, whereas others prefer to start small. Some investors don't even start with a small lump sum, preferring instead to deposit a regular small amount each month. It is important to understand what works best for you and to stick to what you can afford. It is worth noting that investment platforms will often dictate the initial amount that you need to invest, with many opting for a minimum lump sum of £500 or a regular monthly deposit of £50 - £100. Robo-advisers Nutmeg and Moneyfarm are good examples, both requiring a minimum investment of £500, however, Wealthify, only requires an initial deposit of £1. For more information, read our article 'How much money do I need to start investing?'

How much can I make if I invest £1,000?

It is difficult to give an exact figure in terms of the expected return on your initial £1,000 investment, as it will be impacted by a number of factors. The key factors include:

  • the type of product you invest in
  • the period of time you are willing to let your investments grow
  • how much risk you are prepared to take with your investments

However, the Barclays Equity Gilt Study suggests that investing in shares has produced an average annual return of approximately 5.7% per annum above inflation over the last 50 years and the equivalent rate for bonds/gilts was around 2.4%. We've provided some example returns in the table below based on the assumption that an investor achieves an average annual return of 5.7% after fees.

Example returns on £1,000 investment

Number of years invested Example returns based on an initial £1,000 investment
5 years £1,320
10 years £1,741
15 years £2,297
20 years £3,031
25 years £3,999

£1,000 lump sum invested in shares - Assumes growth of 5.7% per year after fees

The above figures are just an example of the returns that could be achieved based on a single lump sum investment of £1,000. But, what sort of returns could you expect if you were able to deposit an additional £10 per month? We provide details in the table below.

Example returns on £1,000 investment plus regular deposits of £10 per month

Number of years invested Example returns based on an initial £1,000 investment - plus regular deposits of £10 per month
5 years £2,044
10 years £3,433
15 years £5,278
20 years £7,733
25 years £10,997

£1,000 lump sum invested in shares, plus regular deposits of £10 per month - Assumes growth of 5.7% per year after fees

What is the best way to invest £1,000

The best way to invest £1,000 will depend on a number of factors including:

  • the type of product you wish to invest in
  • your attitude to risk
  • your investment timeframe
  • how active an investor you aim to be
  • if and when you need access to the money
  • the fees are you willing to pay
  • whether you prefer to invest using an app

You'll need to decide how you prefer to invest whether that's through a traditional online investment platform such as Interactive Investor, Hargreaves Lansdown and Fidelity or whether you would be happy starting out using an investment app such as InvestEngine, Dodl or Moneybox. Alternatively, a robo-adviser sits somewhere in between those two options, providing the convenience and simplicity of an investment app, together with ready-made managed portfolios and additional investment insights and research. Nutmeg, Moneyfarm and Wealthify are three of the top Robo-adviser firms in the UK and are suitable options for beginner investors. Check out our articles  'What are the best investment apps in the UK?' and 'Which is the best robo-adviser in the UK'

Tips when investing £1,000

Finally, we've provided a few helpful tips below that should help you as you embark on investing your first £1,000.

Watch out for fees

There are a number of fees associated with investing including platform administration charges, fund charges, fees for buying and selling investments, transfer fees and exit fees. Always make sure that you understand the fees and compare the charges where possible. You can compare fees of the top providers in our best buy tables. For further reading on fees and the impact that charges can have on investment returns, read our article 'Are stocks and shares ISAs really worth it?'

Special offers

Online platforms, investing apps and robo-advisers may offer incentives and offers aimed at new customers. Special offers usually come in the form of either cashback or fee-free investing and we highlight a number of these special offers in our best buy tables.

Do your research

If you have the time we would recommend doing some research. Simple things like understanding asset classes, knowing the difference between risk and volatility and understanding passive and active investing will help you to become a more confident and competent investor. Also, take a look at our investing jargon buster, a simple guide to the most common investing terms.

Diversification

Diversification is an important consideration when investing as it can help to smooth out losses by spreading risk. Damien explains the importance of diversification in the video below