You’ve got £50,000 to invest, but are unsure what to do with it. You’ve got goals you want to achieve, but know your money will just be losing value in a cash savings account. It’s time to make your money work harder for you.
When it comes to investing, it’s a marathon, not a sprint. Time is your secret weapon that can make the difference between a budget day-trip or an international city break.
The sooner you start investing, the longer your money can benefit from market movements. You can also take on more risk with your money, as you’ll have longer to recover from any short-term fluctuations. More risk means the potential for higher returns, although markets go down as well as up – of course.
What should I do with £50,000?
If you’ve paid off any credit card loans, have an emergency cash fund and are comfortable with your financial security, it could be time to make your money work harder for you by investing it.
You can do it yourself, but this takes time, skill and extra money to cover the cost of trading. It can also be difficult to separate your emotions, financial goals and lifelong dreams from your day-to-day portfolio management.
After all, £50,000 is a lot of money. Taking the leap and making your first investment can be daunting, and managing an amount like this yourself can be stressful when it’s for your family’s future.
That’s why many investors like to hand over the reins to the experts. You can focus on your family as your asset manager focuses on protecting and growing your money for their future.
Unfortunately, the traditional wealth management industry can command expensive fees for its services, which can eat into investor profits. Digital wealth managers like Moneyfarm have created lower-cost opportunities for investors looking for help preparing for the future.
How to invest 50k wisely
When it comes to investing, we’re all different – whether it’s our investment goals, family makeup or financial background. Our investments should reflect and complement this diversity.
Before you start, you need to know what you’re investing for and when you’ll need your money. This will help you build an investor profile that reflects your risk tolerance and will influence what’s in your investment portfolio.
Investing is all about balancing risk and return; if you want blockbuster profits you’re going to need to take on more risk – although this means your money has further to fall too. If you’d rather protect your initial investment than chase after high returns, you’ll take on less risk to try and limit any losses.
It can be difficult to truly understand your risk tolerance before you start investing, especially if you’re transferring from a cash ISA. That’s why Moneyfarm does that hard work for you.
All you need to do is fill in a questionnaire, and Moneyfarm matches you to an investor profile and portfolio that’s built and managed by experts to help you achieve your goals.
What to invest in today
Whilst your investor profile will influence what you invest in, you should still look to diversify your investments to manage the risk in your portfolio.
By spreading your £50,000 across different asset classes and geographies, you hope to offset any losses with gains made elsewhere in your portfolio.
If you put all your money in one investment, your performance is completely reliant on this investment. If it does well, congratulations; if it does very badly, you could lose your entire £50,000.
Diversification is, however, difficult and expensive to get right if you do it by yourself. You have to have specialist knowledge of all markets and know how to value investments.
Investors look to discretionary management for cost-effective diversification in their portfolio. Exchange-traded funds can help investors achieve diversification and transparency at a low cost.
Best way to invest 50k in the short-term
Investing isn’t a quick fix to grow your money. If you’re going to need your money within 12 months, it’s better to keep your money in a cash ISA.
However, if you want to protect your money for a milestone that’s over 18 months away, investing might be for you. The further away your goal, the more risk you can take with your investments as you would hope any short-term fluctuations will recover over time.
The closer your investment goal, the more risk-averse your portfolio will be. This means you will have a higher proportion of bonds as investments compared to equities.
If you’re investing for your retirement that’s decades in the future, you can afford to take on a bit more risk with your investments, whether you’re investing in a pension or ISA. This will increase your potential for higher returns, although markets can go down as well as up.
Whatever your time horizon, maximise your returns by investing part of your £50,000 in a stocks and shares ISA. You can put up to £20,000 in an ISA each year, and any income or growth in the value of your investment will be protected within a tax wrapper.
Get the best return on your £50,000 investment
When we invest, we do it for a number of reasons. Primarily, we want to protect our wealth for the future – this is particularly important in times of low interest and high inflation. If it’s held in cash, the real value of a savings account can go down over time. So, a lot of savers turn to investment in the markets to hold their cash.
In terms of the best way to get returns on your £50,000 investments, it ultimately comes down to your attitude towards (and ability to absorb) risk. Generally, if you are investing over a longer time frame, you will be able to create a portfolio with a higher level of risk – you’ll absorb any negative fluctuations over the longer time period, in theory. If you’re investing for only a few years, on the other hand, you’ll want a portfolio that holds fewer risky assets, to aim for more consistent, steady growth over time.
Also important is diversification. To give your savings the best chance of generating steady, consistent returns over any given time period, a fully diversified investment portfolio is vital. This is where employing the services of a wealth manager can pay off in the long run. When deciding how to invest 50k, it’s a serious figure that requires care and monitoring to ensure it performs – a good wealth manager will offer this and more.
You only have to look at the difference in the returns of the top digital wealth managers to get an idea of how much difference good management can make. Moneyfarm, for example, was found by Boring Money to have performed best over a three year period, when compared to 14 other top wealth managers. You can see the full breakdown of the study here and, of course, past performance is no indicator of future returns, but you’ll see how much returns can vary.
Five tips for investing £50,000
So, you have £50,000 to invest and you’re ready to put it to work. There are, however, some key things to remember before you get started on growing your wealth. It’s possible to make mistakes when investing and investors often stumble at some easily avoidable hurdles when they’re just setting out on their financial journeys.
Here are our key tips to know before you start investing:
Pay off your debt
Make sure you’ve paid off any credit card loans and have a rainy day cash fund in case of emergency.
Invest for you
Build an investor profile and match with a portfolio that will help you get one step closer to your financial goals.
Spread your money across asset classes and geographies to manage risk in your portfolio
Maximise your returns in an ISA
Invest £20,000 a year and protect any income and capital growth with your ISA wrapper.
Let a discretionary fund manager do the hard work for you
Investing for your family’s future can be difficult, hand the reins to an expert so you can enjoy the important things in life.