So you’ve got a cool £50k burning a hole in your proverbial pocket – perhaps from an inheritance, a lucky lottery win or even just from saving hard. You’re wisely considering squirrelling it away for the future. Investing it could be a good shout, offering the potential for higher rewards than cash savings. And it’s almost certainly going to be better for your future wealth than blowing it all on a flashy car, for example. But, particularly if you’re new to investing, there’s a lot to consider before taking the plunge. Here’s a round-up of the key considerations.
But before you jump into investing feet first, ask yourself a few questions.
It doesn’t have to be an either/or. The best approach might be a mix of savings and investments.
The key thing to bear in mind is that, with investing, you should be prepared to leave your money in place for the long term – at least 5 years. That’s because the longer you invest for, the greater the chance your money has of riding out any market volatility and giving you decent returns. If you need to take it out sooner, you risk hitting a market downturn before your money has had a chance to grow enough. This increases the chance of you losing money.
Because of this, it’s generally recommended to keep at least enough money in an easy-access cash savings account to cover 3 months’ worth of essential outgoings in case you lose your job or have an unexpected drain on your finances, for example. Think enough to cover 3 months of mortgage or rent payments, household bills, food and grocery shopping, transport and the like.
Beyond that, it depends on what you plan to use the money for – and when. If you’ll need some of it for short-term goals (within the next 5 years) – a special holiday, for example – then your best bet is to find the highest-paying savings account you can that won’t lock up your money for too long. If your time frame is a year, look for the best 1-year fixed rate savings account, for example.
Once you have enough in savings to cover emergencies and short-term goals, it’s time to think about investing the rest. Over the long term, investing usually yields higher returns than savings. The interest rate on cash savings is rarely enough to compensate for the effect of inflation. This means that savings often lose value in real terms over time.
Investments offer the chance of higher returns with the potential to beat inflation. This also comes with the risk of losses, though. So, if you can only afford to keep your money locked up for the medium term (5-10 years, say), you’ll need to weigh the potential reward against the risks. In the very long term (10 years plus), investing 50k will almost always leave you better off than putting the same amount in savings.
Deciding to invest is only the first step in the journey. Next, you need to decide what to invest in. Broadly speaking, these are the main options to consider when investing for the long term, ranked (roughly) by how risky they are.
There are 2 different types of bonds you can invest in: government bonds and corporate bonds.
An investment fund, such as an index fund or ETF, is made up of tens, hundreds or sometimes even thousands of different assets. These can include stocks, commercial property, bonds and more.
By investing in a fund, you’re effectively buying a small amount of all the different assets it includes. This means that your investment already has a reasonable level of diversification to help you spread your risk compared with investing in just a few individual assets, for example. As a result, investing in a fund is typically regarded as lower risk than the options below.
There are 2 ways in which you can invest in property:
Stocks and shares (also known as equities) are usually regarded as the riskiest of the mainstream investment types. Individual company performance can be volatile, especially (though not exclusively) if you buy shares in smaller, less-established companies. As a result, investing all of your money in a handful of individual stocks carries a higher risk of loss than, for example, investing in a fund that includes hundreds of stocks.
However, with higher risk comes the chance of higher rewards if a company does spectacularly well. You may consider this worth the risk. Plus, many shares pay dividends, which you could either use to boost your income or reinvest to grow your portfolio.
From art and fine wine to contracts for difference (CFDs) and cryptocurrency, alternative investments are assets that don’t quite fit the traditional investment mould. Often complex, often lightly regulated (if at all) and almost always very high-risk, alternative investments are typically best-suited to experienced investors who know what they’re doing and can afford to lose substantial money on their investments. We’re not saying don’t splash out a bottle of vintage wine if you want to for a special occasion. But tread with more caution if you are hoping to turn a profit on it down the line.
| Response | |
|---|---|
| I would consider it | 36.43% |
| I wouldn't consider it | 31.2% |
| Not sure | 16.28% |
| I already do | 16.09% |
To make comparing even easier we came up with the Finder Score. Costs, features, ease and range of investments across 30+ platforms are all weighted and scaled to produce a score out of 10. The higher the score the better the platform – simple.
Read the full methodologyAll investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
No matter how much you’re investing, diversification is key. Diversifying your portfolio is basically a fancy way of saying managing your risk by investing in many different types of assets rather than putting all your eggs in one basket.
You can diversify your portfolio by:
Some investment platforms offer ready-made investment portfolios that match your risk preferences. Alternatively, you can look at the breakdown of a ready-made portfolio (offered by many investment platforms) and invest in assets that match its basic structure.
If this all sounds a bit overwhelming, consider asking a professional financial adviser to make recommendations. This will come at a price, but £50k is a lot of money. A financial adviser could not only save you time but could also help you avoid making poor decisions.
That depends on how you invest the money, what you invest in and how much you make off your investments.
If you invest through a general investment account, then you will potentially be liable for a few types of investment tax, including:
One way to avoid paying investment tax is simply to stay within your annual tax-free allowances, but this may not always be realistic. Another option is to maximise your use of tax-efficient wrappers, such as ISAs and SIPPs.
So you’ve paid off any pricey debt, have enough in an emergency cash savings fund and are confident that investing is the right option to help you meet your medium-to-long-term goals. Now it’s time to get started. Here’s a quick checklist of points to work through.
Providing you’ve got enough in cash savings for an emergency and have paid off expensive debt, investing can be a great way to build money to achieve your goals. While all investments carry risk, some are riskier than others, so there should be options to suit your risk appetite. Whether you’re investing £5k, £50k or £500k, the key thing is to do your research, choose your investments carefully and build a diverse investment portfolio. Depending on your investment experience, knowledge and confidence levels, you can manage the whole process yourself via a DIY investment platform, use a robo adviser or consider paying for professional financial advice.
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