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Apologies if this question is of incredible "noobish" nature, but this is something that's been bugging me of recent. So, suppose I have a thousand laying in front of me, what are my targets for investment? Unfortunately, I know very little of shares, and presume that investing in low-share price companies following a company disaster/startups that are anticipated to attain strong market share -- all of which could x-fold my inputs. Alternatively, and something else I know very little of, are premium bonds. But my question is, how could I maximize the potential of an investment, small or large (I don't mind risk associated with understanding the nature of the company). Any help would be greatly appreciated!

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    Generally the higher the risk the higher the return. If you want to 'maximise' potential return and if you 'don't mind risk' then try betting it all on number 0 of a roulette wheel. I'd call that 'a gamble' though, which you're likely to lose: not 'an investment'.
    – ChrisW
    Jun 6, 2011 at 11:09

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Depending what your timeframe preferences are, here are a couple of options:

  • Stock indexes: as per Fool's investing guide, historically this had the highest return / risk ratio. On a 5-year horizont, with no extra work, this seems the best option.

  • Premium bonds, similar to most cash ISAs currently available, have a rather rubbish ROI ATM (~3-5% AER at max)

  • Invest it into yourself, in the form of personal development, classes & courses, or starting a business. Disadvantage: this also will carry an opportunity cost in the form of your time. On a longer timeline, however, if this improves your market value only by 1%, that pays extreme dividends over the rest of your carrier.

With a single grand at hand, I'd definitely recommend going for option 3 -considering yourself as an investing vehicle, and ask yourself: how can you best improve stakeholder value? You'd be surprised at the kind of results a single grand can make.

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ChrisW's comment may appear flippant, but it illustrates (albeit too briefly) an important fact - there are aspects of investing that begin to look exactly like gambling. In fact, there are expressions which overlap - Game Theory, often used to describe investing behavior, Monte Carlo Simulation, a way of convincing ourselves we can produce a set of possible outcomes for future returns, etc.

You should first invest time. 100 hours reading is a good start. 1000 pounds, Euros, or dollars is a small sum to invest in individual stocks. A round lot is considered 100 shares, so you'd either need to find a stock trading less than 10 pounds, or buy fewer shares. There are a number of reasons a new investor should be steered toward index funds, in the States, ETFs (exchange traded funds) reflect the value of an entire index of stocks. If you feel compelled to get into the market this is the way to go, whether a market near you of a foreign fund, US, or other.

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1000 (£/$/€) is also not a lot to start with. Assuming you want to buy stocks or ETFs you will be paying fees on both ends. Even with online brokerages you are looking at 7.95 (£/$/€) a trade. That of course translates to a min of .795% x 2 = 1.59% increase in value you would need just to break even already.

There is a way around some of this as a lot of the brokerages do not charge fees for their ETFs or their affiliated ones.

However, I would try to hold out till at least $5000 before investing in assets such as stocks. In the meantime there are many great books out there to "invest in knowledge".

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