How to invest £100,000

Whether you’ve inherited it or are basking in a lucky windfall and you’ve got £100,000 and don’t know what to do with it. Investing a lump sum can be difficult, especially when it’s a lot of money, which is why it’s important you know how to invest 100k in the way that’s right for you.

How to invest £100K

Understanding your investor profile is one of the first steps to achieving your financial goals. As what you’re investing for is personal, the way you invest should be too.

By understanding what you’re saving for, when you’ll want your money, your personality and your financial background, you can build a portfolio suitable for you and your goals.

This information makes up your investor profile, which should influence how you invest and your portfolio’s makeup.

No matter whether it’s a healthy eating and fitness target, your dream career path or financial goals, the more suitable and personal a plan is to you, the more likely you’ll achieve it.

Your investor profile will essentially outline your attitude to risk and will help you to find the best way to invest 100k that aligns with your attitude towards risk and your financial goals. The riskier your investments, the higher the return you can expect – although the further your investments also have to fall.

Is 100k in savings a lot in the UK? – yes it is, but If you prioritise protecting the value of your money from inflation, you’ll sacrifice the potential for blockbuster returns over steady income and reliable growth. The more risk-averse investors will have high exposure to bonds in their portfolio, whilst those after bigger returns will prefer equities.

When looking for the best way to invest 100k in the UK, it’s important that investors’ portfolios reflect them. Investors could be missing out on essential growth if their portfolio is too safe, whilst a nervous investor who has a tendency to sell at the first sight of losses could quickly end up out of pocket.

For most investors, knowing how and where to invest 100k falls somewhere in the middle as they look to diversify their investments to manage the risk in their portfolios.

Where to invest £100K

Before investing in any asset, you should consider the potential returns it may bring and how much risk you’re willing to take. When it comes to how to invest 100k in terms of the types of assets, the ones from which you can choose include:

Cash

People often consider cash one of the safest ways to build up savings, as they aren’t exposed to the ups and downs of the financial markets. If you’re asking yourself, “Is 100k in savings a lot in the UK?” the answer is, yes it is. It’s a very significant sum. The problem is that cash can leave savers exposed to the silent threat of inflation, which erodes the value of money over time. If you’re not sure how to invest 100k, putting it into a savings account might not be the best choice.

To offset the impact of inflation, you need to find inflation-beating returns. Unfortunately, that isn’t easy in such a low-interest rate environment. A while ago (between 2008 and 2020), the UK interest rate was an incredibly low 0.1%. It meant that the returns on cash savings accounts were incredibly low, making the lives of savers difficult. At that time, if you were to invest 100k straight into a cash ISA with a return of 1.1%. After one year, you would have had £101,100. However, if the Bank of England managed to keep inflation around its 2% target, the value of the initial £100,000 would have fallen to £98,000.

It meant that you would have needed to earn £2,000 to retain the purchasing power of your money. If your earnings aren’t at least in line with inflation, the real value of your cash pot will consistently decrease year-on-year. You’d have needed even more to see that pot grow.

Across 2021 and 2022, inflation rocketed – reaching 11.1%, the highest rate for 41 years. Knowing how to invest 100k during this period was crucial, as simply saving it would not cut it.  Thankfully, it has now come back down to 3.2%, but this type of volatility means that savers will need to do their due diligence on interest rates if they want to see the value of their savings grow over time.

Stocks

The best way to invest 100,000 for many people means looking toward the financial markets to protect their money and grow it for the future.

When checking out the best way to invest 100k in the UK, it’s important to understand that before you start investing, you must pay off any expensive debt and save at least three months of your outgoings in an easily accessible cash account in case of an emergency. Once you’ve done that, you can look at the best way to invest 100k in company stocks.

Buying stocks if you’re looking to invest 100k, has the potential to increase your wealth faster than putting your money in a cash or savings account. Building an investment portfolio with an excellent investment strategy can help you beat inflation. Also, the power of compound interest can affect your earnings (depending on the investment account), making you more money.

However, there is the risk of stock market volatility, and stocks can under-perform or over-perform. This means you risk losing some or most of your money in the stock market.

Property

Another best way to invest 100k in the UK is to purchase a property. Some see property investing as one of the safest investments in the UK. For instance, buy-to-let properties can generate a steady stream of income for landlords and developers in the form of rent. However, like all investments, there is an element of risk. House prices can fluctuate or crash.

Currently, the situation with house prices in the UK is somewhat precarious at present – the long-term impact of Covid-19 is still unfolding, and it is uncertain how much of an impact Brexit will continue to have on UK house prices in the long run.

The best scenario before you invest 100k in property, is to have paid off all your mortgage to maximise your rental income. However, please take note of capital gains tax and income tax on the earnings from your property investments.

Bonds

Bonds depict a debt owed by either a company or a government. When a bond is issued, the borrower commits to remunerate interest on the funds “lent” to them. Generally, bonds pay out annual interest while also repaying their loan simultaneously. For this reason, if you’re wondering where to invest 100k, bonds are usually considered one of the most secure ways to invest, especially government bonds. There are several types of investment bonds, such as premium bonds (even for kids) and inflation-linked bonds.

SIPPS

If you are looking for the best way to invest 100k in the UK for retirement, then investing in a SIPP is a nice alternative to consider. Self-invested personal pensions allow you to build your investment portfolio based on your risk tolerance, and you have the option to manage it yourself. In addition, SIPPs are nice tax wrappers that shield your investment from the tax man.

A SIPP allows you to invest 100k in a variety of assets, such as stocks, shares, bonds, ETFs, offshore investments, and property.

Other investment accounts

If none of the above appeal, the best place to invest 100k could be in a stocks and shares ISA account or a general investment account. A stocks and shares ISA is an investment account free from income and capital gains tax, but the drawback is the ISA allowance. This tax wrapper can hold cash, stocks, ETFs, and other investment funds. On the other hand, while a general investment account has no tax benefits, it has no

Annuities

An annuity could be a useful option if you want to make sure you have a steady income for a certain period of time, but once set up you cannot access your £100k investment other than via your pre-agreed regular income. That income is guaranteed, but it requires forfeiting the right to access the lump sum.

Criteria to consider when pondering how to invest 100,000

The longer you invest £100,000, the more risk you can take with your money, which means you can expect a higher return.

If you have a short-term time frame, you might not have enough time for your investments to recover from any short-term fluctuations, should they arise. So if you need your money in less than 12 months, the invest 100k option might not be the best way to protect your money.

Longer time frames also encourage you to ride out any short-term volatility and avoid any potentially painful, poorly timed trades. On the other hand, if you invest 100k over a short time frame or you’re a nervous investor, you might be tempted to react quickly to any losses you see in your portfolio, to protect yourself from any significant falls.

But trying to catch a falling knife can be painful, and you can end up missing out on the recovery, which can seriously weigh on returns.

Diversified portfolio

When it comes to knowing how best to invest 100k, a well-diversified portfolio is the best way to go. In addition, a good mixture of equities and bonds is helpful for inflation-beating returns over the long term.

At Moneyfarm, we use carefully selected exchange-traded funds (ETFs) when building our portfolios. Don’t hesitate to contact us if you want to discuss the types of assets we invest in with one of our qualified investment advisors.

Should I save into a Pension or an ISA?

Chances are, you probably don’t feel as confident as you might like about your financial security in retirement. Don’t worry, you’re not alone. In this instance, knowing what to do when considering how to invest 100,000 could mean putting it towards your pension. This move could help to take back control when it comes to your financial future.

How much you’ll need for your retirement depends on how you want to spend your time after you’ve waved goodbye to the rush hour commute – although it’s generally thought you need two-thirds of your final salary to maintain your standard of living.

If you want £26,000 a year, you’ll need a pension pot of at least £520,000 when you retire. If you wish for more luxuries, including long-haul flights, you’ll need £39,000, which is at least £750,000.

There are generous tax benefits to investing in a pension, as you can claim back tax relief relative to your income tax band. This means a basic rate taxpayer essentially pays £8,000 for a £10,000 pension contribution. If you’re a higher or additional rate taxpayer, you can claim back even more through HMRC.

If you do want to invest 100k in the UK, you have to bear in mind that you can only put up to £60,000 in your pension each year, or the equivalent of your annual salary – whichever is lower. If you’re able to invest the full annual allowance, this still means you have £40,000 to play with.

Remember to make the most of your ISA allowance. You can invest £20,000 in your stocks and shares ISA each financial year, and any growth in the value of your investment and any income can build up tax-free. This really adds up over the long term and can help you maximise your returns.

Stocks and shares ISAs are more flexible than pension products, as you can deposit and withdraw from your ISA numerous times in the year without it impacting your annual allowance. It could well prove to be the best way to invest 100k.

As the ISA allowance resets annually, you can continue to top up your ISA at the beginning of each new tax year. However, using your allowance as early as possible is better, as time is powerful when investing.

Not only does it mean your money is invested in the market for longer, but you can also maximise your returns with compound interest – when your returns are reinvested and earn their own returns.

The best way to invest 100k safely

To minimise risk while investing £100,000, it is advisable to divide the funds and deposit them into two savings accounts which are protected by the Financial Services Compensation Scheme (FSCS). However, be aware that the FSCS protection is limited to £85,000 per person and banking group. Therefore, you should be familiar with how banks and banking groups are related.

With a joint account, you are covered for up to £175,000 per person for each banking group, reducing potential loss.

Investing in the Future: Green and Sustainable Options for Your £100,000

If you’re wondering “how to invest £100,000” in a way that not only offers potential returns but also has a positive impact on the world, then green and sustainable investments could be your answer. This form of investing focuses on companies that are proactive about sustainability, limiting their environmental footprint, and contributing positively to social issues.

When considering where to invest 100k, the trend towards sustainable business practices means that a host of options are available to investors. One of the best places to invest 100000 could be in green investment funds. These funds invest in a portfolio of companies that are committed to environmental responsibility, giving you broad exposure to this sector with a single investment. It’s a good way to balance potential returns with your desire to support sustainable practices.

For more information on how to make your money work for you while also contributing positively to the world, check out this guide on how to invest money. There are numerous ways to align your investments with your values, and it’s more possible than ever to have a profitable portfolio that you can feel good about.

The growing interest in green investment funds is part of a larger trend of socially responsible investing, which you can learn more about here. These types of investments allow you to support causes and issues that are important to you, all while pursuing your financial goals.

The trend towards sustainable investing is gaining traction. According to a Financial Times report, investing in sustainable funds can yield significant returns. As with all investing, it’s important to research your options carefully and make informed decisions.

Lastly, here’s a detailed look at green investment funds, a key part of sustainable investing. This guide can help you understand how these funds work and how to evaluate them, assisting you in your journey to invest your £100,000 in a more sustainable future.

Five tips on the best way to invest 100k

If you have no clue what to do with 100k when it comes to building your portfolio in line with your attitude to risk, it’s important to manage the risk in your portfolio. One way to do this is through diversification.

By spreading your money across investments, asset classes and geographies, you hope to offset any short-term fluctuations with gains made elsewhere in your portfolio.

Diversification sounds simple, but it’s difficult and expensive to get right yourself, which is why many prefer experts to do it for them.

When considering the best way to invest 100k, follow these five simple tips to maximise your returns.

1. Scope out your investor profile
2. Diversify your investments to manage risk
3. Keep costs low to keep more of your money and maximise your returns
4. Make the most of your pension and ISA allowances
5. Invest for the long-term

FAQ

What is the best way to invest 100k?

There is no single best way to invest 100k. You need to find the right investment option that works for you. However, some of the best ways to invest 100k include real estate, stocks and shares, ETFs, P2P lending, ISAs, pensions, high-yielding savings accounts or a diversified investment portfolio.

Where can I invest 100k right now?

Where to invest 100k right now all depends on your investment objective, risk tolerance, investment involvement, and when you want access to your money.

Is 100k in savings a lot in the UK?

Yes, it is. The worry is that while 100k might be safe in a savings account, it won’t earn a lot of interest – not as much as it might if you were to invest it. Inflation could significantly lower your money’s real spending power when held in a savings account over time. If you’re not risk averse, you might want to consider investing it instead.

Is 100k in investments a lot?

Yes, 100k in investments is a lot as it will take significant sacrifices to accumulate such an amount, so you need to get how to invest 100,000 right.