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How to invest £100,000

Whether you’ve inherited it or are basking in a lucky windfall, 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 £100,000: Summary Table

🔒 Can I invest 100K safely?Investments are never 100% safe
👌 First step to invest 100KUnderstand your risk profile
⏲️ Short term or long term?Long term
🏅 Top 3 tips to invest 100K1. 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

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 decide what to do with 100k. The riskier your investments are, the higher the return you can expect – although the further your investments also have to fall.

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.

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 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 the types of assets to invest in, the best way to invest 100k includes:

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. However, cash can leave savers exposed to the silent threat of inflation, which erodes the value of money over time. So, if you don’t know what to do with 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. The UK interest rate has been low since 2008, recently falling to an incredibly low 0.1%. Therefore, the returns on cash savings accounts are incredibly low, making the lives of savers difficult.

Imagine you invest £100,000 straight into a cash ISA with a return of 1.1%. After one year, you would have £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.

This means 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.

Inflation is currently incredibly high – reaching over 5%, the highest rate in a decade. So knowing how to invest 100000 is crucial because simply saving it will not cut it.  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

More savers are looking to the financial markets to protect their money and grow it for the future.

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 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 underperform or overperform. This means you risk losing some or most of your money in the stock market.

Property

Another way to invest £100,000 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 precarious at present – the long-term impact of Covid-19 is yet to take shape properly, and it is unclear how much of an impact Brexit will have on UK house prices in the long run.

The best scenario for property investing 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, 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 and inflation-linked bonds.

SIPPS

If you are looking for how to invest £100k 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 in a variety of assets, such as stocks, shares, bonds, ETFs, offshore investments, and property.

Other investment accounts

You can invest 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 deposit/allowance limits.

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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 and with no access to your £100k investment. You will have guaranteed income, but it requires forfeiting the right to access your money.

How to choose the best investments for £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, investing might not be the best way to invest £100K and 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’re investing over a short time frame or are 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

In all, a well-diversified portfolio is the best way to go. In addition, a good mixture of equities and bonds is a good way to go 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 with 100k may mean putting the £100,000 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.

However, you can only put up to £40,000 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 £60,000 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.

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.

How to invest £100,000 safely

To minimize 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.

Five tips to invest £100,000

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 it comes to investing £100,000, 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 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 should 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 investments a lot?

Yes, 100k in investment is a lot as it takes a lot of sacrifices to accumulate such an amount, so you need to get how to invest 100000 right.

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As with all investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest.