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If I had £1,000 to invest, I’d be happy to see so many great shares to buy at the moment. I’d look to put the lump sum into the best ones to grow my money.
However, when it comes to investing in stocks, £1,000 is a small amount because of costs. Hargreaves Lansdown, a popular broker, charges £12 to buy and sell a stock. At that amount, if I wanted to buy 10 different stocks then I’d be down £120 just on trading charges!
Instead, I could put the thousand into index funds. These funds track an entire market, for example the S&P 500 or FTSE 100, and my money grows as the firms on it grow and make money. It’s a little like investing in an entire market at once.
In the FTSE 100’s case, it’s like investing in all 100 of the biggest public companies in the UK. So my £1,000 is spread across 100 firms. That means less risk for me, and I also need to pay just a single trading charge.
Index funds have a drawback though: I will never get market-beating returns. Sure, a fund will include all the top shares, but it will include all the bad ones too. The average tends to be pretty good, but if I want big returns then I’d need to invest in single stocks.
Let’s say I have a portfolio already, and let’s also say it’s got a good mix of stocks and index funds. In other words, I’m already well-diversified to guard against risk. In this case, I’d look to put my £1,000 into just one or two companies. So, what would those companies be?
The FTSE 100 looks tempting. A lot of the big firms are growing and increasing profits while the share prices aren’t catching up. If I can pick well, I’d be optimistic about the future of my lump sum.
I have a keen eye on the housing sector, for instance. The three FTSE 100 housebuilders – Taylor Wimpey, Barratt Developments and Persimmon – have all crashed in value over the last few months. I mean, it’s no surprise what with mortgage rates as high as they are, but perhaps this is an opportunity.
The housing market will get back on its feet sooner or later. So if I can buy in at the lowest point, I might see some spectacular gains. If I had thrown £1,000 into Persimmon at the bottom of the 2008 crash, it would have grown to £14,000 by 2020.
Other underpriced stocks are out there as well. I think it’s fair to say that the UK, in general, looks cheap right now. I don’t have £1,000 on hand, but if I did, I’d be happy scouting for some FTSE 100 bargains.