How to invest £5,000


When you first start investing, it’s normal to feel a mixture of excitement, nervousness and confusion. It makes sense, really. You’re about to spend £5,000 on something you might not fully understand and you don’t want to make a mistake. But don’t worry – you’re about to learn everything you need to know. Wise investment decisions, here we come!

Start at the end: what are you investing for?

Do you have a particular goal in mind for the money you invest? Is it for something specific, like a house you’ll buy in ten years, or is it more of an ‘I’ll know when I know’ situation? Whatever you’re investing for, it’s important to understand how long you intend to stay invested and how much growth you expect.

In simple terms, if you want your money to grow as much as possible, you can do two things. Firstly, leave it invested in the stock market for as long as possible (5 years minimum) and only withdraw when it’s doing well. Secondly, take on higher-risk investments. But remember, nothing is certain and some investments fail, so only take on risks you are comfortable with.

Understand the risks and rewards of investing £5,000

‘Risk’ is a word you’ll come across a lot when investing, so what does it mean? Far from being an entirely negative subject, risk in investing is actually about how rapidly an investment could increase or decrease in value. It’s a choice you can make when you choose what to invest in.

For example, if you started with £500, a low-risk investment might end the year at £550 or £450, while a high-risk investment might end the year at £650 or £350. Higher risk investments have the potential to make more money, but also have the potential to lose more money. This is why it’s generally better to stay invested over a longer timeframe, giving any bad years the chance to rebalance in following good years.

How to build a diverse portfolio of investments

Here comes another key investing word: diversification. As well as varying levels of risk, there are various types of investment you can buy, and the name of the game is to mix and match them. This is what we mean by diversification: having fingers in multiple pies so that no single investment holds too much of your money. This way, if one company goes bust, you have a thousand others that are still going strong.

So now to pick a thousand investments. Don’t panic, it’s much easier than you think! If you choose to invest in funds or ETFs, they will have already done the hard work for you. Each fund contains a diverse variety of other investments, from company shares to government bonds to property, gold and more. They’re great for beginners and, with £5,000 to invest, you can afford to buy a good selection of them.

Of course, if you are fairly confident and have an idea of what you want to invest in, you could certainly buy individual stocks, bonds and so on yourself, without buying a fund. It’s entirely up to you. Just remember to diversify.

Keep your investments in a Stocks and Shares ISA

Like a current account for your cash, you need something to keep your investments in. With £5,000, it makes sense to open a Stocks and Shares ISA so you can benefit from the annual £20,000 tax-free savings allowance.

Which platform should you open the account with and buy investments from? Good question. To inform your decision, consider how much support you’ll need and how much choice you’d like when choosing investments. Do you want recommended fund lists, learning materials, a professional advice service? Think about what you really need and avoid paying extra for anything you won’t use – it will all be reflected in the fees you pay.

Compare the platforms to find the best fit for you

The best way to choose between investment platforms is to use an online calculator. Unless you get a kick out of massive spreadsheets and weeks of research, leave it to the algorithm!
Our investment fees calculator makes it especially easy. We begin with a mini questionnaire to determine what’s important to you and filter the market, then calculate how much they would charge you to invest with them. We also share our own expert view on each platform, based on decades of experience and without a trace of favouritism.

Ready to have a go? Then head over to our comparison tools. Or, if you feel like learning a bit more about the specific types of investment we’ve mentioned today, there are plenty of how-tos and explainers in our Learn section. Happy investing!