A £1,000 investment is a significant step into the world of investing, but how do you invest it? Where do you start? And more importantly, how do you make the most of it? Here are some smart ways to invest your cash.
Consider opening a Stocks and Shares ISA
If you want to invest £1,000, it could be a good idea to do it tax-efficiently. How do you do this, you ask? Well, opening a Stocks and Shares ISA could help. Introduced in 1999 by the UK government, Stocks and Shares ISAs (also known as Investment ISAs) let you invest in a tax-friendly way. In other words, you don’t need to pay UK tax on any gains you make, meaning you get to keep more of your returns. One thing to keep in mind is that the amount you can put in a Stocks and Shares ISA is limited. Currently, you can invest up to £20,000 per tax year (subject to change). This is your ISA allowance and each year, you have until midnight on 5th April to use it, so try and make the most of it. If you’re planning on investing £1,000, it could be worth placing your investment inside an ISA to remove tax from the equation and maximise your potential returns.
Make your investment plan ethical if you want to
Whether you put your money in a Stocks and Shares ISA or a General Investment Account, it could be a good idea to make your investment plan ethical. At Wealthify, you have the possibility to invest ethically. If you choose this option, we’ll exclude harmful activities from your Plan, such as tobacco and gambling, and your money will be invested in companies that are committed to driving positive change in society. And the good news is that evidence suggests that ethical investments tend to perform just as well as other types of investments. For instance, take the FTSE All Shares, which lists over 600 UK companies, and the FTSE4Good, which focuses on companies that are striving to do good. Between September 2013 and 2018, the former returned 43.4% whilst the latter returned 44.1%1. Put simply, if you had £100 invested in each of these markets during this specific time period, there would have only been a 70-pence difference in what you might have gained.
Try to stick with your investments over the long-term
If you want to make the most of your £1,000 investment, it’s important to think long-term. Remaining invested for a number of years is key when it comes to building wealth over time. Why, you ask? The answer is simple: the longer you stay invested, the more likely you are to see positive growth. It’s mainly due to the power of compounding. When you invest in companies, you could be enjoying some of their profits in the form of dividends. The magic happens when these dividends are reinvested. Every time, you put your earnings back into your plan, your money will add up and over the long-term, your pot could benefit from a serious boost and grow exponentially bigger. Let’s take an example to show you the wonders of compounding. Say you put your £1,000 in an Ethical Stocks and Shares ISA and remain invested for 15 years, you could end up with £1,5342. But now let’s imagine you hold onto your investments for 40 years, the final sum could look very different as you could end up with a total of £3,9413 – quite a difference!
Make the most of digital investment platforms
Investing £1,000 can seem daunting, but it doesn’t have to be. With digital investment services, like Wealthify, getting started has never been easier. All you need to do is choose how much to invest and the risk level you’re comfortable taking. We’ll do the rest, from picking your investments to managing your Plan on an ongoing basis. And it doesn’t stop there! You’ll be in control. Not only will you be able to check how your investments are doing at anytime, anywhere, you’ll also have the possibility to boost your Plan with monthly top-ups.
1: Data from Bloomberg
2: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £1,004. If markets perform better, your return could be £2,285. Values correct as of 06/01/20.
3: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £1,752. If markets perform better, your return could be £9,055. Values correct as of 06/01/20.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.