With £10,000 sitting in your bank, you’re in a good place – especially if you’ve already got three months of expenses saved up for emergencies and rainy days. So what on earth do you do with this extra £10k now?
You would do well to consider looking at thematic investing. It’s a way of investing in the long-term trends, and innovations that are shaping our global economic future and transforming the ways in which we live.
| Should I save 10k or invest it? | To get better returns on investment, it is advisable to invest 10k |
| Is £10,000 enough to invest? | Yes, it’s a good start |
| What is the best way to invest 10k, long term or short term? | It depends on an individual’s financial situation. The best advice is to invest long term |
| What is a mistake made with investing? | Not diversifying the portfolio using different asset classes |
| What are the costs associated with investing? | It depends on the service you choose |
Why invest instead of saving £10,000
Whether you’ve saved hard, received an invested inheritance, or had a winning streak at the races, the chances are you’re looking for the best place to invest 10000 to get your savings working harder for you.
If you have £10,000, you might be thinking about starting a savings account or opening a retirement fund. But before you start putting your money into one of these accounts, you should consider whether you want to invest 10000 or save it.
A savings account is recommended to save money for the near future or for a significant life change such as a new baby or moving house. Investing is a great way to build wealth over time. However, it is a long-term commitment and requires research and patience.
The main advantage of saving is the security, but saving money doesn’t guarantee a significant increase in value. Investing gives you a better chance of beating inflation, although it does come with added risk as the value of your investment can go down as well as up. You should consider investing if you already have an emergency buffer, and stocks and shares is one many options open to you.
Investing can be confusing and intimidating. There are so many investment options out there, and they all seem to promise high returns. So, how do you choose the best way to invest 10000?
Whether you’re a seasoned investor or a complete novice, investing a lump sum of £10,000 in one go can be daunting.
Is £10,000 a good investment amount?
Many people think that £10,000 is too much to put into an investment portfolio, but actually, it is an excellent investment amount. Before you choose the best way to invest 10k, it’s crucial you understand the risk and return trade-off.
If you leave your money invested long term, it will be able to grow and ride out the fluctuations in the stock market, giving it enough time to make a profit.
Essentially, investors looking to grow their money over the long-term need to be prepared to take on more risk.
How to invest 10K: First steps and tips
Deciding how to invest with 10k will be personal to you. Here are five things you should consider when looking for how to invest money and maximise your returns on the financial markets.
- Investor profile
- Time in the market
- Diversification
- Active or passive investment
- Management fees
Investor profile
The first step to reaching your financial goals is understanding your investor profile. Acting like your investor DNA, your investor profile influences what you should invest in, and the proportion of each asset class you should include in your portfolio.
If you’re looking to grow your £10,000 over the long term, you’ll likely have more exposure to equities in your portfolio. But remember that the value of the shares in which you invest can go up and down.
Those who don’t want to take on higher risk will opt for a higher exposure to bonds, which are typically seen as ‘safer’ investments. Traditionally, bond investors get regular income from their bond coupon and get their initial investment repaid to them at maturity. However, there are still risks attached to bonds.
Share investing sounds simple enough, but getting the right mix of assets to help you reach your goals can be difficult. That’s why investment advice is crucial for those with hardly any financial confidence or know-how.
Unfortunately, without access to advice, many people fail to realise the full potential of their savings and miss out on some fantastic life events as a result. Investment advice allows people to make better decisions with their money, thereby helping them lead a better life.
Thanks to innovation in the financial services industry, cost-effective investment advice is now available to those who need a helping hand. At Moneyfarm, our technology matches your investor profile with an investment portfolio that’s built and managed by our team of experts, reflecting your risk appetite, time horizon and financial personality for as long as you invest.
Whether you’re too busy juggling the school run with your career, or you lack financial confidence, or you just want someone to do it for you, you can focus on the more important things in your life, safe in the knowledge that the experts are working to secure your financial future.
Choose your timeframe
As the goals behind each investment journey differ, so does each investor’s time horizon. Knowing when you’ll want to access your cash is important because it influences the assets you hold in your portfolio.
If you’re saving for retirement 30 years away, you can afford to be riskier with your asset choices. But, on the other hand, if you need this cash for next year’s summer holiday, you’ll maybe play it a bit more conservatively. However, it’s important to remember that time is indeed your friend.
The best way to invest 10k is to have a long-term time horizon. The financial benefits of long-term investing are well documented; portfolios benefit from compound interest over longer periods, when an asset’s earnings are reinvested to accumulate more interest. In addition, a longer time horizon encourages investors to take more risks, as short-term losses aren’t as crucial.
Remember, it is time, not timing, that maximises returns. For example, research from asset manager JP Morgan shows that if an investor had stayed invested in the S&P index from 1994 to 2014, they’d have generated a 9.85% annualised return. However, if an investor had missed the 10 best days of performance, they’d have made just 6.1%.
Looking at the long-term picture takes the emotion out of trading. It prevents investors from falling into the common trap of buying high and selling low, allowing them to ride the natural fluctuations of the market instead.
Try to diversify
Although investors use risk to generate higher returns, this doesn’t mean portfolios should be left exposed to a sudden swing in sentiment.
When it comes to where to invest 10k, using a diverse range of investments is one of the best ways to reduce risk within a portfolio. As the performance of the three main asset classes – equities, bonds, and cash equivalents – are rarely correlated, you should look to use these as the building blocks of your portfolio. A truly diversified portfolio looks to smooth out the negative performances with the positive.
Choosing the best investment for 10k takes a lot of time, knowledge, skill, and a decent chunk of cash to diversify successfully. The work is also never-ending; portfolios need to be rebalanced as trends change. This is why exchange-traded funds (ETFs) are so popular.
An ETF is a fund that tracks a market index (like the FTSE 100 or S&P 500), a specific commodity, bond, or even a basket of assets. An ETF tracks an index. What is an index? An index represents the performance of a specific group of assets, and in an ETF that tracks an index, the fund will essentially own shares and trade them to mirror the movements of the index being tracked.
ETFs can be traded just like individual stocks, but they offer more diversification because they’re based on an underlying index or investment. In addition, as ETFs don’t involve active management, they have a lower management cost than traditional investment funds.
Decide between active and passive investment
The flexibility of choosing between active and passive investment asset classes is an integral part of investment strategy.
The best way how to invest with 10k using a DIY method, is through active investing. Active investments require a certain level of involvement from you, such as managing your portfolio, researching companies, and monitoring performance. On the other hand, passive investments don’t require much effort from you. You can use passive investing if you don’t have the time to acquire investment knowledge.
Active funds cost more because they are managed to try to beat the market. Passive funds cost less because they’re easier to manage. The UK saw an increase in passive funds due to the coronavirus pandemic and the subsequent severe volatility of the stock market.
You can choose to invest actively by buying shares and taking part in company decisions, or passively by investing in an index fund that invests in many companies at once. You can also combine both by investing actively in some areas and passively in others.
However, knowing where to invest 10k should be based on your risk tolerance, time availability, and time horizon.
Exploring emerging investment opportunities: the best way to invest 10k
As we venture further into the 21st century, the investment landscape continues to evolve, with new and innovative opportunities continually arising. A trend that could have a significant impact on determining the best way to invest 10k in the UK is the emergence of modern investment areas such as cryptocurrencies, green energy, and tech startups.
The allure of these sectors lies in their potential for significant growth. For instance, cryptocurrencies, despite their volatility, offer the potential for substantial returns. But remember, where there is potential for high returns, there is also high risk. Thus, if you are considering whether to invest 10k into cryptocurrencies, be sure to do thorough research or seek professional advice. For more details on investing smaller amounts, you can visit this guide on how to invest £1,000.
Green energy and tech startups represent the future. They have potential to offer significant returns as society continues to move towards a more sustainable, tech-enabled world. The key is identifying the best investment for 10k among these emerging sectors. You can gain more insights on how to invest money effectively here. For those with more significant sums to invest, the approach might be slightly different. Check out this guide on how to invest £30k or £40k in the UK.
Remember, due diligence is crucial in understanding the potential risks and rewards of these emerging markets. Always take the time to research any investment thoroughly and consult with a financial advisor if necessary. The best way to invest £10,000 may vary significantly from one individual to another, based on their risk tolerance, financial goals, and investment timeline.
Management fees
While you expect to pay for a service, the no-hassle, hands-off approach to investing has traditionally come at a cost. Management fees are constantly under scrutiny, but they can quickly eat into your profits.
For example, let’s say you’re charged management fees of 2% each year. If your £10,000 portfolio grows by 6% to £10,600, you’ll have to pay out £212 in charges this year. So, your £600 profit is instantly slashed by a third from £600 to £388.
When wondering how to invest £50k, consider that Moneyfarm offers competitive management fees, with rates starting at 0.75% for portfolios valued up to £10,000 and decreasing to 0.6% for investments up to £50,000.
In addition, we choose to invest in exchange-traded funds to keep fund charges low, at an average of 0.2%. All this adds up to you keeping more of the returns you invested.
The best type of investment tax wrapper: From ISA to pension
Tax-free wrappers are used to protect your investments from the taxman. It would be best if you used a tax-exempt wrapper when investing. The tax benefit ensures you don’t pay income, capital gains, or dividend tax.
The best investment for 10k includes different types of tax-free investments, such as pensions, stocks and shares ISAs and lifetime ISAs. You can choose what to invest in within these products. Each tax-free investment type comes with an annual allowance, and you choose how best to invest your ISA allowance.
What is a pension? A pension is an effective way to save for retirement. You’ll benefit from tax relief and possibly receive employer contributions too. But you don’t have access to your money until you reach at least 55 years of age (changing to 57 in 2028). The best way to invest 10k and still have access to your money is to use a savings account or short-term investment account. Savings accounts and other short-term investment accounts don’t offer the same tax benefits. However, you can access your money at any point.
Stocks and shares ISAs are great for mid-term or long-term investments if you plan to use the funds in 5-10 years. They’re also great if you plan to access your money in the future. Investing £10,000 in stocks and shares ISA means you’ll be able to get your money back when you need it, without having to pay income tax, and you won’t have to wait until you’re 55/57 to access it.
Investing in a lifetime ISA is an easy way to save money for retirement or save towards your first home. However, there is a downside to lifetime ISAs. If you invest 10K in a lifetime ISA, you can’t take any money out of your account until you are 60 or over. Exceptions to the rule include terminal illness or withdrawals made towards buying your first home. Also, any monetary withdrawal before age 60 will incur a 25% penalty fee.
Use your annual allowances early when investing £10,000
It’s important to make the most of the annual tax allowances available to you to maximise your returns.
You can invest up to £60,000 a year or your annual salary – whichever is lower – into your pension each year to benefit from the government’s generous tax relief.
You’ll get tax relief on your contributions relative to your tax band. If you’re a basic rate taxpayer, this turns a £10,000 contribution into £12,500 in your pension. Don’t forget to claim any extra tax relief in your annual tax return if you pay a higher or additional rate tax.
This can make a real difference over the long term and help you reach your goals quicker – which means you don’t have to work as many years to afford your retirement.
You can also invest up to £20,000 each financial year in a stocks and shares ISA and watch your money grow due to the exemption efficiency that this type of tax wrapper vehicle facilitates. ISAs are a simple way to grow your money to reach your financial goals.
Understanding risks and how to minimise them
Investing 10K involves a degree of risk. While savings accounts offer the most safety, you won’t get reasonable interest rates. However, if you are looking for the best place to invest £10,000, you could consider buying stocks instead of saving.
But remember, investments in stocks are higher risk, and there is the possibility of losing money. The best way to invest 10K and minimise investment risks is through asset allocation and diversification.
Asset allocation is a strategy that spreads your investments across different types of asset classes, such as stocks, bonds, index funds, real estate investment trusts (REITs), and cash alternatives. It helps to protect you from falling stock prices when the market is down. It also allows you to profit from the ups and downs of the stock market.
Diversification is another way to minimise risk. Diversification is the process of balancing different asset classes within an investment portfolio, so they offset each other amid changing market conditions.
The two main underlying assets in a diversified portfolio are stocks and bonds. Stocks are for higher returns, while bonds are used as low-risk assets.
We need both asset allocation and diversification to keep risk to a minimum. A solid diversification strategy that protects you against market volatility is effectively achieved by taking in a broad spectrum of components within and across asset classes.
Focus on the important things in life
Building up £10,000 of savings requires hard work, dedication, and sacrifice. Once you’re sitting on a sizable cash pile, it’s time to flip the switch and make your money work hard for you.
Managing your portfolio can put unnecessary strain on your career, family, and social life. Most investors want to grow their wealth but make memories simultaneously, so they want someone to do the hard work for them.
This is where digital wealth managers like Moneyfarm come into play. Armed with their expertise and experience, it’s their job to monitor the markets and maximise your returns on your behalf so that you can focus on the important things in life.
FAQ
How to invest 10k in stocks?
The best way to invest 10K in individual stocks, ETFs, mutual and index funds, and stocks and shares ISAs. You can also use a robo-advisor to invest in stocks.
How to invest 10k for the short term?
You can invest 10000 in a high-interest savings account or a cash ISA for short-term goals.
What investments can I make with 10k?
10k investments include pensions, stocks and shares ISAs, lifetime ISAs, ETFs, and other investment instruments.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
