How to Invest 5000 Pounds UK

How to Invest £5000 in the UK – Best Investment Options

Last Updated July 23rd 2021
30 Min Read

If you have a lump sum of £5,000 today, it is indeed a big question on how you can grow your wealth further. The good news is that you don't have to limit yourself to a single asset or investment style. 

Rather, there are a plethora of different investment products available in the market. If you are ready to explore securities such as stocks, ETFs, or cryptocurrencies - you might be able to build your way towards financial stability at a faster rate. 

In this How to Invest 5000 Pounds Guide, we explore some of the best potential investment opportunities that you might be interested in. We also cover how you can find the best online broker to put your money to work from the comfort of your home. 

Contents:

How to Invest 5000 Pounds UK in Five Steps

Investing in the UK financial market has become a lot easier these days. With the following steps, you can now invest your £5,000 in any asset class in just a few minutes:

  1. Choose a regulated UK broker that supports a wide range of securities - such as eToro. 
  2. Open an account with your chosen broker by entering your personal details. 
  3. Fund your account using a credit/debit card, e-wallet, or bank transfer. 
  4. Choose the asset you want to buy and enter the amount you wish to invest. 
  5. Confirm your order, and simply click on the 'Open trade' button. 

If you choose a broker like eToro - you will also be able to make investments at 0% commission and you won’t pay any stamp duty - as this is waived by the platform!

How to Invest 5000 Pounds UK - Top 10 Investments for 2021 

There is no single way for you to find which assets are best when considering how to invest 5000 pounds UK. This will depend on your risk tolerance and how you want to diversify your funds. 

To help you along the way, here we have listed our Top 10 Picks of Investment Opportunities for your consideration. 

  1. FTSE 100
  2. NVIDIA
  3. Tesla
  4. Amazon
  5. Real Estate Investment Trusts (REITs)
  6. Gold
  7. Bitcoin
  8. ETF Bonds
  9. Permanent Interest Bearing Shares (PIBS)
  10. Automated Trading on eToro

 

Top 10 Best Ways to Invest 5000 Pounds UK  

1. FTSE 100 - Best Way to Invest 5,000 Pounds Into the UK Economy

If you are looking to take a simple and straightforward approach to investing, the UK's FTSE 100 is a great place to start. 

For those who don't know, the FTSE 100 is an index made of the top 100 companies listed on the London Stock Exchange. A majority of these are often referred to as blue-chip stocks - based on their large market capitalization and stable finances. 

For instance, here is a quick glance at some of the most prominent companies in the FTSE 100 Index:

  • Burberry Group 
  • Rolls-Royce Holdings
  • AstraZeneca Plc
  • Intercontinental Hotels Group
  • GlaxoSmithKline
  • Tesco
  • Vodafone

As you can see, by investing in the index - you will be owning a share in the top-performing companies in the UK. Furthermore, this will also ensure that you have a diversified portfolio of equities. 

In other words, during a market crash -  you will not be overexposed to the risks of a single stock, nor a single sector. If you hadn't noticed already, the companies in the FTSE 100 belong to different industries - such as technology, retail, manufacturing, and others. 

Crucially, the FTSE 100 is also weighted. Meaning - your investment of 5,000 pounds will not be allocated equally to the 100 companies. 

For instance, let's suppose that HSBC has a weight of 6%. Meaning, that 6% of your £5,000 will be invested in the shares of HSBC - which will be £300. 

Additionally, you will also have the right to receive dividend distributions from the respective companies. This will be paid proportionally to your holdings in the firm in question. For example - if you hold BP shares worth 500 pounds, and it pays a dividend of 4% annually - it means that you will receive a payment of 20 pounds.

You can invest your 5,000 pounds into the FTSE 100 through an ETF that tracks this index. Companies such as Vanguard and iShares offer ETFs that buy shares of all the companies in the index - at the correct weight. 

If you are interested, you can find these ETFs at commission-free broker eToro and start investing with a minimum of just $50 (around 35 pounds). 

2. NVIDIA - Best for Low-Risk High Yield Investment 

If you are hoping to limit your investments to a single stock - it will be wise to make sure that it comes with a low-risk outlook. With that in mind, NVIDIA (NVDA) is one of the largest US companies in regard to market capitalization. 

This multinational technology company specializes in designing GPUs for gaming and other related markets. As a matter of fact, it is the largest supplier of processing units in the gaming space. Moreover, NVIDIA also engages in the production of chips for mobile computing.

Now, assessing its fundamentals, the shares are up by over 118% since April 2020. When you take into account the impact of the COVID-19 pandemic, the stock has performed incredibly well. However, it is important to bear in mind that past performance does not guarantee the same level of returns in the future. 

That said, it wouldn't be far-fetched to say NVIDIA can be categorized as a staple stock - since its products are always in demand in the technologically-driven world. Furthermore, the company also has a stable balance sheet along with a proven business model. 

So if you are in the market for a strong and steady stock, then NVIDIA might be a wise choice for your portfolio. 

3. Tesla - Best Investment Among Growth Stocks

Among individual stocks, Tesla is another company that continues to demonstrate high growth potential in the long term. This electric car manufacturer is currently the largest in the sector in terms of capitalization. 

Coming to capital gains - Tesla (TSLA) easily falls into the group of top-performing shares over the last decade. At the time of its IPO, the company stock was worth only $3.84 (adjusted for the 2020 stock split). 

11 years later, - at the time of writing, Tesla stocks are valued at $681 per share. This translates to an increase of over 17,000% in a matter of just over a decade. By all means, Tesla might offer you a high yield in terms of capital appreciation in the upcoming years. 

However, it is essential to note that Tesla has not reported any plans to pay dividends to its stockholders. This strategy might remain the same for many years to come - as the company is reinvesting its profits in other ventures. 

Although Tesla is priced at over $600 per share (about 450 pounds) - you don’t need to invest a hefty sum to own its stocks. Instead, through online brokers like eToro, you can purchase fractional shares of Tesla by investing just $50. 

As such, you have the option to invest a part of your 5,000 pounds into this particular stock and choose to diversify the rest of the funds elsewhere. 

4. Amazon - Best Investment for Long-Term Returns 

Diversification is an important aspect of an investment. However, that does not imply you need to explore every asset class in the financial market. Instead, if you are more comfortable with stocks - you can always put your money into a basket of individual companies. 

For instance, tech stocks are deemed one of the best ways of growth investing. One example in this category is Tesla that we discussed above. If you want to limit your investments to this one sector - then Amazon is worth considering as another addition to your long-term portfolio. 

The firm was publicly listed on the NASDAQ in 1997 - with its stocks priced at $1.73 per share (adjusted for stock splits). By April 2021, the value of a single stock of the company has increased to $3,300. 

In other words, if you invested your 5,000 pounds in Amazon in 1997 - your investments would now amount to over £10 million. 

Considering Amazon's growth prospects, many argue that the company still has plenty of potential in the future. Amazon continues to reinvest by launching new products and entering emerging markets. This indicates that the price of the stock might increase steadily for the foreseeable future. 

The downside here is that owing a single Amazon share will set you back $3,000. But as we mentioned earlier, by investing through eToro,  you can now buy fractional shares of Amazon by putting forth just $50. 

5. Real Estate Investment Trusts (REITs) – Best Investment for Properties 

If you think that 5,000 pounds does not suffice to enter the real estate investment scene, you would be wrong. Today, you can access the property market through a Real Estate Investment Trust (REIT) - at much lower costs. 

In plain words, REITs are run by financial institutions, which collect investor's funds to purchase properties. In most cases, REITs will focus on a particular field of real estate such as hospitality, commercial, residential or more. 

As an investor, you will be able to receive profits in terms of any rental income and capital appreciation. The returns you make will depend on the type of properties the REIT invests in, as well as the wider real estate market itself. 

Moreover, when you invest in a REIT through an Exchange Traded Fund (ETF), you have the option to cash out any time you want. This can turn out to be beneficial when you want to liquidate your investment. 

A great REIT to consider is the iShares MSCI Target UK Real Estate ETF that tracks the MSCI UK IMI Liquid Real Estate Index. 

6. Gold - Best Investment for Hedging 

When you think about diversification, it would be a good idea to invest a part of your 5,000 pounds into a commodity such as gold. Investors have been using this precious metal as an instrument against market volatility for decades. 

After all, gold is always in demand across the global markets - both as a security and as a consumer product. Furthermore, there is only so much of this metal available on the planet. As such, the speculation is that its value will continue to rise over the course of time. 

The price history of gold agrees with this prediction. In the last 20 years, the value of this metal has increased significantly - gaining over 360%. 

Investing in gold has also become easier over the years. You no longer have to buy the metal in its physical form. Instead, you can invest in an ETF that follows the value of this asset in real-time.

7. Bitcoin - Best High-Risk Investment 

Investing in cryptocurrencies is certainly not for the faint-hearted - as this market is defined by its volatility. However, Bitcoin is also famous for its high reward potential. 

Among the thousands of digital currencies available today, Bitcoin unquestionably dominates the market. Currently priced at around $58,000 - this means that the value of the digital coin has grown over 5 million percent in a matter of just 12 years. 

In essence, had you invested your 5,000 pounds into Bitcoin when it launched, the value of your investment would have increased to over 250 million pounds. 

However, the main reason that stops many investors from choosing Bitcoin is the high entry price. However, with eToro - you can start investing in cryptocurrencies with just $25 (about 18 pounds).

If you want to keep your stakes low - you can also consider other altcoins and stable coins available in the alternative finance market. These include Ethererum, Dash, EOS, Ripple, Litecoin, and more. 

If you are willing to take a chance on this security, you could be looking at a high reward in the future. After all, developers are still exploring the real-life applications and utilities of cryptocurrencies.

That said, cryptocurrencies are also highly volatile. In case you invest, it is best to keep your stakes to a small sum. 

8. ETF Bonds - Best Short-Term Investments for High Yields

A majority of the investments we have covered so far focus on long-term returns. If you would prefer a relatively short-term approach, an ETF bond fund can be to your liking. 

Traditionally, investing in bonds requires you to lock in your money until the date of maturity. Depending on the type of bond - this could go up to several years or even decades. 

However, an ETF bond fund allows you to tap into the lucrative bond market without having to worry about a lock-in period. Similar to other asset classes, ETFs bond funds will diversify your investments into a basket of different sectors. Each ETF usually targets a specific market - for example, bonds issued by governments or corporations. 

That said, if you want high yield investments - then you will need to look for ETF bond funds that cater to sectors such as emerging tech markets. However, the chances are these also come with a greater risk. 

As you can liquidate your ETF investment anytime, you do not have to worry about the lock-in period of the individual bonds. 

One example of an ETF bond worth your consideration is the Vanguard Total Bond Market ETF - which holds over 10,000 different financial instruments from multiple markets. You can invest 5,000 pounds in this ETF bond through eToro without having to pay anything in commission. 

9. Permanent Interest Bearing Shares (PIBS) – Best Investment for Fixed-Income

Investing 5,000 pounds into volatile assets could bring you high yields in the long run. However, there are also those who prefer a regular fixed income rather than unpredictable capital gains. 

For those who fall into this category, Permanent Interest Bearing Shares (PIBs) might be of interest. In simple terms, these are bonds issued by building societies and organizations in the UK. 

Compared to government bonds, these offer a much better yield. For instance, the PIBs offered by National Westminster have a running yield of 6.6% - and those issued by Investec Bank pay an amount of 8.8%. As these are fixed coupon payments, you can also reinvest the annual bond payments into other investment options. 

This way, you can merit from compound interest - and thus grow your investment at a faster rate. If you want to invest in PIBs, you will have to do so through a third-party broker. 

10. Automated Trading on eToro- Best Investment for Passive Trading 

There is no arguing that finding the right investments is not an easy undertaking - even with sufficient experience in the financial markets. Not only do you have to pick wisely, but you will also need to time the investments correctly. In other terms - being an investor can be a full-time job. 

As such, if you want to take a more passive approach, it is possible to leverage the expertise of other investment professionals to handle your capital for you. With eToro's Copy Trading feature, you can now invest in an experienced trader with a proven track record. 

eToro allows you to choose which trader you want to invest in - based on their financial returns, risk tolerance, and other factors. You can also pick an expert based on their trading strategy and preferred asset classes - such as equities, commodities, or cryptocurrencies. 

Once you know which eToro trader you want to follow - you can decide how much you want to invest in them. The minimum investment amount per trader is currently set at $500 (about 350 pounds). 

If your chosen trader invests 6% of their portfolio into a particular stock, the same will be mirrored in your portfolio. However, the stake will be 6% of the amount you invested into the trader funds. You can choose to set your own preferences - thus maintaining control over your trades. 

The Copy Trading feature on eToro works best for those who do not have sufficient time to research the markets on a DIY basis. 

How to Invest 5000 Pounds UK - What to Consider

Although we have listed some options for your consideration, picking the right investment for your portfolio is always subjective. 

Therefore, you are strongly advised to do your own research regarding the different investment opportunities yourself. Regardless of which third-party financial service you follow, you should always analyze the asset by yourself - to understand the risks and rewards involved. 

To help you along the way, this section of our How to Invest 5000 Pounds UK Guide will explore what you should consider when choosing the right investments for your financial portfolio. 

Risk and Reward 

The basic requirement of any investment is that you should be able to make more money in return. However, the returns you make will depend on the specific asset you choose to invest in. 

For example, if you invest 5,000 pounds in a low-yield savings account - your yield will be limited to approximately 1% per year. This means - your returns would amount to only 50 pounds a year. However, this also involves very low risk. 

On the other hand, those with higher risk tolerance might invest 5,000 pounds into more speculative assets. For instance, growth stocks such as Amazon saw its share price rise over 70% in 2020. In another example, the electric car company Tesla saw annual gains of 700%. 

However, the past performance of a company does not always guarantee that the future returns will also be on the same level. After all, the markets cannot stay consistent or rise continuously without any hindrances. 

As such, investing in these assets also involves a high amount of risk. In other words, the potential returns from an asset are directly proportional to the underlying risks. 

This is called the 'risk-reward ratio’. Put simply, the more risks you are willing to take, the more returns you should expect - given that the market moves in your favour. 

The UK or International Markets 

As a resident of the UK, you are no longer limited to domestic markets alone. Today, FCA-regulated brokers such as eToro allow you to access different global exchanges and marketplaces. 

This allows you to gain exposure to different economies and asset classes. 

For instance, the S&P 500 has demonstrated better returns compared to the FTSE 100 over the past few decades. 

So today, if you are thinking about how to invest 5000 pounds UK, you also can consider the US markets - as you might be able to receive better returns there. 

That said, it is also important to look into a diversified approach. You can allocate part of your 5,000 pounds into UK-listed investments while choosing to put the rest in other economies. 

With brokers such as eToro, you can even invest in strong and emerging markets without having to pay any commission. 

Explore the Liquidity of Investments 

Depending on your financial goals, you should also consider how liquid your investment is. For instance, will you be able to cash out the asset when you need to at any given point, and how easily and quickly can you do this at your chosen broker?

For example, assets like stocks, ETFs, and cryptocurrencies such as Bitcoin come with high liquidity. Meaning - you can sell your investment at any time and receive the funds in your brokerage account instantly. You can then withdraw the funds to your bank account. 

However, if you invest in a fixed-rate bond, you will have to wait until it matures in order to access your investment again. Your funds will be locked away until the day the bonds mature. 

Timing the Markets 

When looking into how to invest 5000 pounds UK, it is common to think in terms of long-term investments. On one side, this removes any need for you to study short-term market trends. However, this is not your only option. 

You can also choose to invest in short-term markets - which might allow you to grow your income faster. In this case, you will have to time the market correctly - ensuring that you are buying when the market dips and selling when the market is approaching its peak. 

For instance, during a market crash - many highly-priced stocks might experience a major dip in value. This poses an opportunity for you to enter the market at a discounted price. 

Eventually, the stock in question can recover and even increase in value - leaving you with better gains. Moreover, this sudden change in price action might occur in a matter of weeks or months.  

However  - it is not easy to predict how the market will move. 

As such, it is crucial to research which assets are likely to perform well in the short term. Not every security can earn you high rewards in the long term. Picking the right asset will thus require you to have a strong understanding of the wider financial markets. 

Check Out: 7 Tips On When To Buy A Stock And When To Sell A Stock

Dollar-Cost Average Your Investments 

When investing 5,000 pounds - you can either choose to put the whole amount in one asset all at once - or make steady investments over a period of time. The latter approach is called dollar-cost averaging. 

In doing so, you will be able to spread out your investments and benefit from short-term dips in the market. 

For instance:

  • Let's say you want to invest in Tesla stocks at $670. 
  • As an investor, you are hoping that the value of Tesla stock will go upwards. 
  • However, by the next month, the price of Tesla stock drops to $650. 

Now, according to dollar-cost averaging, you can choose to make more investments - but at lower entry prices. 

For example:

  • In months two and three, you pay $650 and $600 for Tesla stock. 
  • By the fourth month, the stock of Tesla bounces back to $700 per share. 
  • This exceeds the initial cost of $670 per share. 

So if you consider this approach, your average cost here is $640 per share. Had you purchased all your Tesla shares in one go - at $670 in the first month - you would have paid a higher amount.

Using this dollar-cost average strategy is best done when combining it with diversification. This ensures that the risks are limited, as you will decrease your market exposure. 

How to Invest 5000 Pounds UK - Diversification 

Perhaps the most important aspect of any investment is to diversify your capital. In plain words, you will be putting your £5,000 into multiple securities - as opposed to investing it all into a single asset. 

For instance, let's say you want to invest £5,000 into BP shares. In case the stocks of the company plunge in value over the course of time - you are looking at a loss of a substantial amount of money. 

On the contrary, had you limited your investment into BP to only 5% - you would have been able to mitigate the losses. In this case, you will be allocating the rest of your capital among other securities - such as ETF, bonds, REITs, and cryptocurrencies. 

Furthermore, your other investments might also perform well - making up for the losses you encountered with a bad investment. 

That said, diversifying will require you to have a firm grasp of the different investment options. 

Alternatively, you can also consider the Copy Trading tool we mentioned earlier for automated trading. Using this method, you can invest in multiple traders who specialize in different asset classes on eToro - thus diversifying your money. 

Crucially, your profit potential will also be dependent on the fees charged by your broker. The right broker can make the investment process easier and cheaper for you. 

Read Also: What Are The Best Undervalued Stocks In The UK

How to Select the Best Online Broker for Your 5000 Pounds Investments UK

Before you start investing - not only do you need to do in-depth research, but you also need to find a fitting broker to buy the assets from. This can indeed be time-consuming, but a step that is indispensable. 

There are a number of aspects that you need to look into before you sign up with a brokerage platform. To help you along the way - we have created a list of metrics that you can assess while choosing your online broker to invest 5,000 pounds. 

License and Regulation

Regardless of which asset you are investing in, the safety of your funds is always a priority. For this reason, it is crucial that you choose a regulated broker that has investor protections in place. 

There are several regulatory bodies that issue licenses for online brokers. In the UK, the primary regulator is the Financial Conduct Authority (FCA). Online brokers regulated by the FCA have to submit for regular audits and are required to have your funds segregated, among other things. 

That said, the FCA is not the only regulatory authority governing online brokers. You can also find brokerage platforms licensed by ASIC (Australia) and CySEC (Cyprus). 

In this respect, eToro is a well-respected broker regulated by not only the FCA but ASIC, and CySEC too.

Supported Securities 

When you are investing 5,000 pounds in the long-term, diversification plays a significant role. As such, you need an online broker that can offer you access to different types of securities - across different economies. 

For instance, FCA-regulated broker eToro supports thousands of different assets - which includes stocks, ETFs, indices, cryptocurrencies, and more. No matter which security you choose, you will be able to invest in it via the online broker without paying any commission. 

Fees and Commissions 

Every online broker will charge you a variety of fees and commissions - and this will differ depending on the asset, as well as the individual firm’s policies. 

Trading commissions are a type of flat fee that you are liable to pay based on the size of your investments. 

For instance, suppose that your chosen broker charges a commission fee of 1% on all cryptocurrency trades. Meaning - on your investment of 5,000 pounds, you will have to pay £50 in commission.

Then, when you cash out your investment, you will again have to pay £50 in commission. This commission can easily add up - especially when you make several investments. 

With that said, as we mentioned several times earlier - investing through eToro will not cost you any money in terms of commission or share dealing fees.  

Payment Methods 

Alongside trading fees, you also have to verify which payment methods are supported by the online broker. Ideally, it is best to have more than one option so that you can opt for your preferred method. 

The best online brokers such as eToro allow you to process payments through instant bank transfers, credit/debit cards, as well as e-wallets like PayPal. 

How to Invest 5000 Pounds UK on eToro

Now that we have discussed how you can find the best broker to invest your 5,000 pounds in the UK - we will now walk you through the investment process. 

The guidelines we have provided below are based on top-rated broker eToro - which allows you to buy assets on a 100% commission-free basis. 

Step 1: Open your Online Account

You can start by visiting the eToro website to open your online investment account. 

eToro will ask you to fill in some personal data - such as your full name, date of birth, national insurance number, and contact details. 

In addition, as eToro is regulated by the FCA - you will also be asked to complete a KYC process. This means you will have to upload your passport/driver's license and a utility bill as proof of residence. 

Note: You are required to complete this step only when you want to deposit more than $2,250 (about 1,600 pounds) or make a withdrawal. 

Step 2: Add Funds to your Online Account

At this point, you will have to add money to your eToro account. Supported payment methods on eToro include - credit/debit cards, bank transfers, and e-wallets. 

Note that a bank transfer might take a few days to process. As such, it will be best to go for another payment type. 

Step 3: Start Making Investments 

With your account funded, you can now search for your chosen asset on the eToro website. Once you have located the security, click on the 'Trade' button. 

You will then be redirected to the investment page of the respective asset. Here, you can enter the specific amount you want to invest - which has to be stated in US dollars as this is the primary currency used by eToro. 

As the last step - click on 'Open Trade' to complete your first commission-free investment.  

How to Invest 5000 Pounds UK - Conclusion 

The way you invest your 5,000 pounds should depend on your long-term financial goals. Are you hoping to liquidate the investments soon? Do you want regular fixed income? Are you saving for retirement?

Having a list of your requirements will make it easier for you to choose the right assets for your portfolio. The bottom line is that both your time horizon and your risk tolerance must be given serious considerations when making investment decisions. 

Regardless of which approach you choose, make sure to diversify your money through an FCA-regulated broker such as eToro. This will ensure that your funds are protected, and in the meanwhile, you will also be able to make investments at a 0% commission rate. 

eToro – Best Broker to Invest 5000 Pounds UK

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eToro have proven themselves trustworthy within the industry over many years – we recommend you try them out.

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FAQs

Which is the most lucrative way to invest 5,000 pounds?

When thinking of how to invest 5000 pounds UK, it is always recommended to take your financial goals into account. If you are seeking a low-risk option, then you have UK gilts or savings bonds. For higher returns, you might want to look into ETFs, stocks, or indices. 

Is it possible to start investing with only 5,000 pounds?

Yes, today, there is a myriad of options for you to start investing with 5000 pounds. On FCA-regulated broker eToro, all you need is $50 (about 35 pounds) to invest in stocks and $25 (about 18 pounds) for cryptocurrencies.

How can I invest 5,000 pounds risk-free?

All investments come with a certain extent of risk. However, FSCS-backed UK savings accounts and UK gilts are relatively less risky compared to the other investment options in the market. However, make note that these also offer very low returns. 

Is it a good idea to invest 5,000 pounds in shares?

Buying shares of a company is one way to enter the investment space. There are thousands of individual stocks accessible to you in the UK market as well as international exchanges. However, when you follow this strategy - make sure that you diversify into several individual stocks to mitigate the risks. 

How much money can I make by investing 5,000 pounds?

Your potential returns will vary depending on the type of security, the risk you take, and the length of your investment. You can get an understanding of this by studying the past performance of the respective asset over the course of the last ten years or so. 

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