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How to Invest £1000 in the UK | 4 Best Ways

How to Invest £1000 in the UK
Nemanja Curcic

An initial investment budget of £1000 may not seem like much. Make the right steps, however, and it still has the potential to produce tangible returns. In this guide, you will learn how to invest £1000 in the UK, the pros and cons of different approaches, and how to avoid some common mistakes when investing. 

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What kind of investor are you?

A large portion of your investing strategy boils down to personal style and financial goals. First, ask yourself these questions:

  • What is my investing goal? Before purchasing your first asset, you need to set a clear investing goal. Is the sum just extra money that you want to set aside and let grow for a while, or do you want to try your chances at multiplying it with some riskier approaches? The destination defines the path you need to take;
  • What is my risk tolerance? Investing in the UK does not have guaranteed success, and £1000 is not some pocket change everyone can afford to lose. However, the level of risk you’re willing to take defines the potential of gains. Higher risk bears a higher potential reward and a higher chance of loss. Your risk tolerance is the key to the right strategy;
  • How much do I want to be involved? Investing methods carry different requirements in time and effort. If you have more of them to spare, an active investing approach might suit you more, with passive investing as a better option if the opposite is true. Bear in mind that active trading might prove to be a tougher nut for inexperienced investors. The market never sails across calm waters. 

Your age, risk tolerance, personal preference, and financial visions all shape your optimal investing strategy. With time, these may change, so it would be wise to reestimate occasionally.

Best ways to invest £1000 in the UK

To invest £1000 is the best way to spend it in the UK. Depending on the assets being invested in, you can expect different outcomes. There is no single best way to do this; you have built up your investor profile, so the most optimal strategy should be the one that fits it. 

Let’s introduce the best ways to invest £1000 in the UK:

  1. Stock market;
  2. Index funds and ETFs;
  3. Real estate — REITs;
  4. Cryptocurrencies.

In the following paragraphs, we’ll dive into details.


How to invest £1000 in the UK #1: Stock market

In this section: How to invest £1000 in the stock market in the UK?

Investment type: Long-term growth

Risk level: Varies

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The stock market might not seem an ideal candidate for £1000 investments, but it is a viable long-term approach that can yield decent returns. The level of risk and the potential of gains depend on the historical performance of the stock in the company and the volatility of the chosen market.

While your initial capital might seem limited, you can buy fractional shares. A fractional share is a portion of a stock, smaller than the whole share. With fractional shares, you can invest by the number of pounds available. Also, with fractional shares, you can diversify even with those companies you wouldn’t be able to invest in otherwise.

Stocks by no means have a safe outcome, but having a clear objective and a steady hand increases your chances. If you subdue emotions in the volatile phases of the market and endure the negative periods in favor of the bigger picture, your investment should produce a significant profit. 

Let’s take the popular S&P 500 index as an example. In 2021 its shares surged and provided a return of +26.89%, only to drop to a -19.44% return the following year. Such swings may indicate high instability; the average returns of the S&P 500 since 1957 amounted to 10.21% annually. If you invested £1000 in the S&P in 2017, your investment would be worth double that at the end of 2023.

How to Invest £1000 in the UK: The S&P 500 annual returns graph.
The S&P 500 index annual returns. Source: macrotrends.net

It is essential to carefully select the company and the stocks you want to buy. The type of industry and the industrial sector are also important factors, as well as their previous financial performance.

When you reach the optimal conclusion, you should create an account on an exchange platform that provides such transactions. We recommend you join the community of millions of investors at eToro, a platform of choice with quality tools and favorable terms. Once you register, you can start to invest in stocks.

Pros and cons of investing in the UK stock market

Pros

Pros

  • High returns: Compared to the more traditional assets (e.g., bonds), investing in stocks has a much higher potential with greater average returns; 
  • Liquidity: The stock market has high liquidity, which translates to faster and easier conversions from cash to stocks and vice versa;
  • Low barrier of entry: Investors do not need a significant starting budget to get into the stock market. With commission-free trading and no-minimum accounts, most of the platforms allow you to start trading with much less than £1000; 
  • Build long-term wealth: In the long run, a well-composed portfolio of stocks can provide significant returns with stable average increases. At the very least, investors are expected to stay afloat of the inflation. 
Cons

Cons

  • Returns are not guaranteed: Returns on stocks are not guaranteed. All investment is speculative. While the statistics are on the side of stocks more than with most other financial assets, they are not impervious to economic stagnation. Loss is possible;
  • No short-term gains: Stocks are not the instruments that can game the market. For noticeable results in returns, years and even decades have to pass; 
  • Volatility: Stocks are also susceptible to price volatility. If you invest in stocks, prepare yourself for emotional trials due to price fluctuations. Resisting the urge to change your approach in the middle of the process is vital;
  • Time and effort investment: Investing in individual companies and stocks requires investors to perform regular maintenance and monitoring. Both fundamental and technical analyses have to be regularly performed, and investors need to pay attention to the state of the market. Stocks are a form of active investment with non-negligible time and effort costs.

How to invest £1000 in the UK #2: Index funds and ETFs

In this section: How to invest £1000 in index funds and ETFs in the UK?

Investment type: Long-term growth

Risk level: Varies

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In contrast to active investing approaches, index funds, and ETFs are financial assets that usually require little active management from investors. Portfolios that have them are marked by high diversification and commonly rely on a buy-and-hold strategy. Likewise, investing in exchange-traded funds (ETFs) or mutual funds serves as a benchmark to the global market, and potential gains follow the market expansion.

Investors in index funds and ETFs don’t game the market but grow with it. 

In the UK, the most popular and tracked indexes are:

  • FTSE 100 – the 100 largest UK companies;
  • FTSE 250 – from 101st to 350th largest UK company in the UK (also known as “mid-caps”);
  • FTSE 350 – every UK company from the 1st to 350th largest;
  • FTSE SmallCap – smaller UK companies not listed in the FTSE 350.

You might also consider investing in the three most broadly tracked indexes in the US, which are:

  • The S&P 500;
  • Dow Jones Industrial Average;
  • Nasdaq Composite.

Pros and cons of investing in index funds and ETFs in the UK

Pros

Pros

  • Diversification: Spreading your investment to different companies, industries, and sectors helps reduce the overall risk and mitigate potential major financial losses;
  • Low fees: Due to the passive investing approach, investing in index funds and ETFs requires few transactions and maintenance costs. This helps reduce the associated fees, especially when compared to active investing assets;
  • Easy access: Getting into the market has been made easy with the help of online brokerages like eToro. They are affordable and easy to use, which is particularly beneficial for beginner traders;
  • Liquidity: ETFs and mutual funds have high liquidity. In other words, investors can convert these assets to cash and vice versa without any trouble or significant waiting times;
  • Transparency: As public assets, reports on index funds and ETFs are readily available for investors to check and analyze;
  • Convenience: Handling an index fund is much more convenient than juggling individual stocks in several different companies;
  • Simplicity: The passive approach associated with these funds leaves investors out of reach of different biases. Put simply; traders won’t have to witness the stark contrasts in price swings that can happen within a short time. 
Cons

Cons

  • Limited control: You cannot selectively invest in companies with index funds as you have no control over which companies are included in them;
  • Volatility: Index funds are tied to their benchmark indexes. If the market experiences significant drops, your investment in index funds will likely follow in its steps;
  • Slow gains: The passive approach of the buy-and-hold method wins in the long run, but is markedly slower than some of the alternatives. With low risk come lower returns over the same time.

How to invest £1000 in the UK #3: Real estate (REITs)

In this section: How to invest £1000 in real estate in the UK?

Investment type: Long-term growth, diversification

Risk Level: Medium

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Investing in property in the UK with £1000? It is possible. Although you cannot buy any meaningful property with the sum, you can still enter the real estate market through REITs.

REITs, or ‘real estate investment trusts’ are companies that manage real estate properties that can generate income. Spread across various sectors and industries; these represent an access point despite the historically high real estate prices as of May 2023. 

You can publicly trade REITs through a platform like Interactive Brokers, and such assets are sought-after with high liquidity and the potential to provide you with an income.

Pros and cons of investing in UK real estate through REITs

Pros

Pros

  • High dividend yield: REITs are under a legal obligation to convert no less than 90% of taxable income to dividends for shareholders. The dividend yields from REITs are among the highest across the market;
  • Diversification: Investing a portion of your funds into REITs diversifies your portfolio without the need for excessive active management of the assets;
  • Liquidity: While selling or buying an actual property might be difficult, REITs are publicly listed on stock exchanges and remain a highly liquid asset;
  • Solid returns: The potential returns from REITs can reach above the returns of the S&P 500, and are very likely to stay above the inflation margin;
  • Exposure to the real estate market: REITs serve as an access point to the real estate market with a limited initial investment. The bonus is that investors do not have to own or manage properties to become entitled to a rental income. 
Cons

Cons

  • Slow growth: The direct consequence of >90% of income going to dividends is that there is >10% left for business growth. This significantly hampers expansion;
  • Interest rate sensitivity: Since little internal income is left for expansion, REITs tend to raise external debt and equity capital to grow. This leaves them vulnerable to increases in interest rates;
  • Sector concentration risk: REITs focused on a single sector are vulnerable to negative events affecting that particular sector. The most recent such event with disastrous consequences is COVID-19 and its effect on tourism;
  • Tax-eligibility: REIT dividends are susceptible to taxes as regular income.

How to invest £1000 in the UK #4: Cryptocurrencies

In this section: How to invest £1000 in cryptocurrencies in the UK?

Investment type: Alternative investment and diversification

Risk Level: High

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For those of us with higher risk tolerance, an investing option to consider is cryptocurrencies. How you invest in crypto is further divided into investing in cryptocurrency tokens, such as Bitcoin (BTC), Ethereum (ETH), or Dogecoin (DOGE), and investing in companies that deal with cryptocurrency and blockchain space, like Coinbase (NASDAQ: COIN) or Roblox (NYSE: RBLX).

What deters conservative investors is that cryptocurrencies are a high-risk, high-reward investment. Cryptocurrencies are a relative newcomer to the global financial market, and prices can wildly fluctuate. Not even the most established crypto coins like Bitcoin are immune from price swings. Such swings can bring amazing fortunes to those who use such opportunities but result in losses for most other investors. 

Efforts to subject crypto to more regulations also affect the price of tokens. If you decide to invest in cryptocurrencies, you should always be informed about the newest trends and developments. Make sure to thoroughly research a cryptocurrency before buying it, as thousands of coins circle the market.

Pros and cons of investing in cryptocurrencies in the UK

Pros

Pros

  • High-risk, high-reward: With a little bit of luck, investors can multiply their investment quickly;
  • Alternative market: The crypto market is an alternative investment to more traditional and conservative financial markets;
  • Non-stop trading: Cryptocurrencies are highly liquid and get traded around the clock. 
Cons

Cons

  • Complex assets: Crypto is new and thus can be difficult to grasp for newcomers;
  • Volatility: Price swings are due to extreme asset volatility. This is the factor that contributes most of the risk to crypto;
  • Unestablished: While accepted in many sectors, it has yet to attain widespread support as a long-term investment option;
  • Scams: Being new makes the crypto waters somewhat muddied for the inexperienced: rug pulls, pump-and-dump schemes, hacking, phishing, etc.

How to safely invest £1000 in the UK — things to consider

There are a couple of things to consider before you invest your £1000 in the UK to prevent a negative outcome. Confirm the following:

  • No high-interest debt: It is essential to begin investing with no luggage in the form of high-interest debt behind you. No personal loans, payday loans, especially not credit card debt. While credit card debt interest can go beyond 20%, all debt with interest rates above 2% is considered high debt.
  • Set aside an emergency fund: Similar to investing, the outcome of a life period cannot be predicted. It is best to set aside an emergency fund before you purchase your first asset. Your living space might require renovations, you might experience a medical emergency, or your car might break down. Having an emergency fund helps you to avoid high-interest debts that can eat away all the profits acquired by investments. Keep your emergency fund where you can’t lose your principal, such as a savings account.

How to safely invest £1000 in the UK — investing tips

There are also checks you want to go through after you start investing:

  • Diversifying: Investing in one asset is a highly risky endeavor. The best investment practice is to spread your funds across a wide portfolio. The more components it has, the less it will get affected in case of price crashes. Invest across assets, sectors, and industries, if possible. Diversifying will help you fine-tune the level of risk that you are willing to take;
  • Spreading out your investments: Instead of buying an asset all at once, consider using the dollar-cost averaging (DCA) approach. It will divide your investment over time and maximize the value of the purchased asset regarding the price you pay or receive;
  • Stay wary of fraud: Every industry has its scammers, but investing is especially prone to malevolent individuals preying upon those with less experience. They get more creative, less obvious, and bolder as time passes. Forgeries never looked more authentic, and fake websites never more legitimate. Sometimes it is wise to listen to your hunch about something that seems too good to be true. Go with your gut feeling and do extensive research on whoever it is you are dealing with. For example, always check the register of the Financial Conduct Authority (FCA) for the company you want to invest in. You can never be too safe.

Conclusion

While £1000 might not seem like a proper sum to start investing in the UK, it can return a significant profit if handled with care and insight. Another benefit of a modest investing sum is that you can learn the ropes and experience the market first-hand without losing an unaffordable amount of cash.

That said, the approach is somewhat different than with the starting budget of £20k or £100k.

You might even return to one of these guides after your £1000 sufficiently grows. Just remember to be smart with your investment, follow the given guidelines, and be patient and steady in your decisions. Have a clear goal in mind and always do the necessary research. 

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest £1000 in the UK

How to invest 1000 in the UK?

The best way to invest £1000 in the UK is to diversify it across multiple assets, including stocks, index funds and ETFs, REITs, and cryptocurrency.

How to invest 1000 in stocks in the UK?

The best approach to investing £1000 in stocks in the UK is diversifying your investment through various stocks. Use regulated brokerages like eToro only.

How to invest 1000 in real estate?

The most efficient strategy for investing £1000 in real estate in the UK is via REITs. These come in diverse portfolios, give significant dividends, and possess high liquidity in comparison to real estate property.

How to invest 1000 in index funds and ETFs in the UK?

The best way to invest £1000 in index funds and ETFs in the UK is through a regulated brokerage such as eToro. Index funds are one of the most common forms of passive investment.

What is the best way to invest 1000 short-term in the UK?

The best way to invest £1000 short term in the UK is to buy high-risk, high-reward stocks or cryptocurrency.

Is it safe to invest 1000 in the UK?

If you carefully observe the instructions provided in this guide, the risks of investing £1000 in the UK should be manageable.

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  • 0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.

  • Copy top-performing traders in real time, automatically.

  • eToro USA is registered with FINRA for securities trading.

30+ million Users
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. eToro USA LLC does not offer CFDs, only real Crypto assets available. Don’t invest unless you’re prepared to lose all the money you invest.

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