By Frazer Fearnhead – Team Captain at The House Crowd
Where Is The Best Place To Invest £1000?
There is no easy answer to this question as it is largely determined
by your views and your circumstances.
Firstly, the sensible thing to do will be to review your borrowings and the rates of interest. If, for example, you are paying a credit card company 18% APR then, without doubt, the sensible thing to do would be to pay that off as it is highly unlikely that anything you invest in will earn you a return that high. Clearly common sense dictates that you pay off the debts attracting highest interest rate first.
It is also wise to keep some money on hand for unexpected expenses – your own rainy day fund. It is generally regarded as sensible to have the equivalent of 3 months living expenses saved up and easily accessible before you start investing.
So let’s assume that you are in the position of having paid off short term debt, you have your rainy day fund sorted out and you have a spare £1000 knocking around and you recognise that if you leave it in the bank it’s going to attract very little interest and its value is going to be eroded by inflation so it will be worth less in 12 months than it is now.
The first question to ask yourself is: how risk averse are you?
All investment involves some degree of risk so you need to ask yourself – is it more important for you to make as much money as possible or to not lose any. Generally speaking, the bigger the risk, the more you could potentially earn.
How much risk are you willing to take and how can you mitigate those risks; for example, by investing in a managed fund or diversifying and spreading the money over a number of shares in different companies is essential to think about before investing.
You must also consider when you may want your money back; for example, if you are saving for a specific purpose. So think about how liquid the investment is – shares in listed companies are highly liquid – you can sell them immediately and get your money back within hours. Investing in stamps, wine or property is illiquid and it may take a long time to have your money returned.
Another issue to think about is whether you want it to produce regular income or capital growth? £1000 is never going to produce much income but it’s a good starting point and if you invest £1000 regularly it will soon start to build up.
As for capital growth, if you are lucky and invest the money for example in an early stage start up you could experience huge capital gains in a short time – but even if you are an expert stock picker it’s still highly speculative. The fact is most start up companies fail, so you are a lot more likely to lose money than pick the next Google or Apple.
And finally, ask: do you want to control your investments and choose where your money is invested or would you prefer a completely passive investment where someone else manages your money.
With only £1000 to invest you are going to be fairly limited in your choice of investments. Even if you have a high appetite for risk, many potentially lucrative investments are only available to sophisticated investors and high net worth individuals with tens of thousands available to invest.
Investing in a Fund
There are a wide range of funds out there – either general tracker funds which track particular stock markets or there are numerous specialist funds that pick certain types of companies or geographical areas. The amount of profit you make will depend to a large extent on how skilled the fund manager is, what happens to the general economy, how long you invest for and how you invest – drip-feeding money in every month or investing the whole amount available at once.
To make life easier for investors, most fund supermarkets have recommended funds chosen by their expert stock-pickers. Try Hargreaves Lansdown’s website for more information.
You may also want to give Nutmeg a try – it’s a relatively new business that offers professional investment management, low fees and will help you choose a portfolio that fits your risk profile – www.nutmeg.com .
Using your annual cash ISA allowance, will allow you to save up to £15,000 without paying income tax on the interest. However, the rates of interest are little better than the bank. The best instant access cash ISAs pay around 1.5-1.6%. It’s low risk but not exactly exciting and although its tax free, inflation will take its toll.
From April 2016 it is expected that peer 2 peer lending will be available via ISAs and these may produce a great way of earning higher returns tax free.
Peer 2 Peer Lending and Crowdfunding
Over the last five years, the peer 2 peer lending and crowdfunding industries have grown together side by side and are now recognised as a global phenomenon attracting lots of interest from the press and Venture Capitalists. They have democratised the investment industry giving ordinary investors (i.e. those who are not necessarily high net worth or sophisticated investors) the ability to invest small amounts of money in vehicles that traditionally required much larger amounts of capital. By crowding like-minded people together, these companies enable them to potentially make higher returns than they are likely to do via institutional investments.
Rather than you placing your money in a bank so they can lend it to people or businesses and make large profits, you are now able to cut out the banks and, via a web platform, choose specifically who you want to lend money to or, in the case of equity crowdfunding, you are now able to acquire shares in exciting young start up businesses or take a share of a buy to let property and the money it generates.
Some would regard these types of investments as higher risk than institutional investments, but the returns they offer are attractive to many people, especially those who want greater control over where their money is invested.
Here’s a few of the main sites for you to take a look at:
Peer 2 Peer Lending (business loans) – Funding Circle, Thin Cats
Peer 2 Peer Lending (secured by property) – The House Crowd, Lend Invest
Peer 2 Peer Lending (individuals): Zopa, Funding Empire
Property crowdfunding (allowing you to purchase a share in a property for £1000 or less): The House Crowd, Property Moose
Equity Crowdfunding (shares in unlisted companies): Seedrs, Crowdcube, SyndicateRoom
To find out more about our crowdfunding property investments please register below.
Property values can fall. Your capital may be at risk & returns may vary. Read our Risk Warning.