How to invest £200,000

If you are wondering what is the best way to invest £200k for the purposes of creating a steady income stream, and you’d like to consider your options, you’ve come to the right place. In this article, we’ll examine the choices open to you and offer guidance as to which ones could help you achieve your goal.

If you have £200,000 to invest, that’s a lot of capital and investing wisely can bring you a substantial regular income. The best place to start is to determine whether to invest over the short or the long term.

Before we begin our discussion on the best way to invest £200k, we should say that one of the biggest financial decisions you can make, is to start investing. If you don’t already hold an investment portfolio and are interested in what one could do for your long-term finances, click the link below to get started.

The difference between short and long term Investments

Okay, I have 200,000 to invest – do I go long term or short term? If you’re asking yourself this question, let’s start with checking out investing over the short term.

What are short term investments?

Short term investments are generally considered to be those made for a period of less than five years. When people put their money into cash savings accounts rather than investing it, it is considered a short-term option.

Saving and investing are not the same thing. Look at saving as tucking money away for a future expense – something like a holiday, for example, or as a contingency for an unexpected bill, like a costly car repair. The key criterion with saving is being able to get your hands on your money instantly. But because of that, the interest rates on savings accounts are pretty low – as low as 0.1% in some instances.

So, in terms of the best way to invest 200k to create regular income, an ordinary cash savings account is not the way to go.

Investing, on the other hand, is where you look to put money away for the long term (a minimum of 5 years).

What are long term investments?

If you are looking to create a steady income, you need to put your money into some sort of investment that will offer you a good interest rate. It is that interest that you can draw down as income while leaving the original investment sum untouched, so it can continue earning interest for future income.

Having established that you need to invest your money, we now need to think about the best way to invest 200k to get you that income.

What is the best way to invest 200k?

As you can imagine, when you ask people the best way to invest 200k in the UK, you are likely to get a dozen different suggestions. It can all be quite confusing, so let’s start by looking at the most common options.

The top £200k investments for 2024

When it comes to how to invest 200k in 2024 in the UK, you’ll find plenty of advice online. However, you need to be very careful when searching the internet – there are plenty of charlatans and fraudsters who would be only too happy to relieve you of your money.

We believe the best investments for both larger and smaller sums of money are those that are fully diversified and built for the long-term. This means opening an investment portfolio that’s in line with your attitude to risk and your long-term goals. Avoid the temptation to gamble with short-term investing and get a portfolio that offers a reasonable level of risk and active management to assure it’s always fit for purpose.

Other smart £200k investment opportunities

Some people shy away from investing in stocks and shares because they believe them to be too volatile. So, let’s take a look at a few alternatives.

• Real Estate: If you are looking at how to invest 200k in property, what you will hear time and time again in investment circles is the need for diversification. Some American investors plump for a Real Estate Select Sector SPDR Fund. It is something that looks to provide investors with a realistic representation of the Real Estate sector within the S&P 500 Index. It is a diversification of several companies, but all are within the same sector. Another option for how to invest 200k in real estate is buy to let, whereby you use the rent as your income.
• Gold & Silver: As regards where to invest 200k in the UK, given the recent history on the rate of inflation, some investors choose to invest in gold and use it as a hedge against inflation, while others prefer silver as a commodity purchase – another investment that has stood the test of time.
• Peer to Peer Lending: P2P lending grants you the opportunity to lend to your peers. Returns are in the region of 4.5%+ per annum, and you can choose special platforms like Lending Works or Twino. Another option on peer to peer investing is to take out an Innovative Finance ISA.
• Cryptocurrencies: Is the best way to invest 200K by buying into cryptocurrency? Only if you are not one of those with a nervous disposition. Bitcoin fluctuations are well known to be extreme. But many people are excited about the future of Ethereum and its potential following the impending launch of Ethereum 2.0
• Buy a business: Buying a business is another option that is not for the faint-hearted – especially given the uncertainty of the Coronavirus situation. But if you have a great business idea and you are not risk-averse, it could work for you and provide a source of income in the coming years.
• Stocks and shares: Stocks and shares can provide you with the best return on 200k investment plans. However, they carry a degree of risk, something we will look into in more detail below.
• Ethical and Sustainable Investing: Ethical and sustainable investing has become a focal point for many investors who are conscious of their money’s impact on the world. This approach emphasises investments in companies and funds that adhere to environmental, social, and governance (ESG) principles. When looking to invest 200K, it’s essential to align the investment with values that promote sustainability and ethical practices. By doing so, investors not only contribute to positive societal change but also potentially tap into markets and industries that are poised for growth in a world increasingly focused on sustainability. Ethical and sustainable investing with 200K can include thematic investing with options like green bonds, renewable energy companies, and socially responsible mutual funds. These investment avenues reflect a commitment to long-term value creation, environmental stewardship, and social responsibility, offering a meaningful way to grow wealth while making a positive impact.

Are stocks and shares the best way how to invest 200k?

As we have said before, stocks and shares do carry a certain amount of risk, but the potential reward is significantly higher returns than many other forms of investment. The first thing you must do is understand the risk.

How to invest 200k and get to grips with risk

Many people think that the best way to invest 200k to generate income, is to open a stocks and shares ISA. But before you go down this route, you must fully acquaint yourself with risk and what it could mean to you and your money. Around 2.5 million people have Stocks and Shares ISAs, so what is the big attraction?

The role of risk tolerance in investing £200k

All investments carry a degree of risk. If you are totally risk averse, forget about investing. Instead, put your money into a savings account, or better still, a Cash ISA. But, as indicated earlier, the interest your money will earn will be low, and your money could lose value in real terms due to the effects of inflation.

When it comes to investing, you mustn’t be overly afraid of risk; in a way, it is your friend. The more risk you are willing to accept, the more interest your investments will earn. You’ve only got to take a look at Moneyfarm’s seven managed portfolios. They are numbered to reflect increasing risk factors. If you click on each portfolio respectively, you’ll see the average annual returns over an 8-year duration vary from 0.3% to 8.9%, and that the overall trend is always upwards.

To return to the topic of how to invest 200k in an ISA, while taking risk into account;  the fact of the matter is that around 2.5 million people in the UK have stocks and shares ISAs, so what is the big attraction?

ISAs Offer Tax-efficient ways to invest £200k

Nobody likes to give money away to the taxman, so the idea of a “tax wrapper “is an intriguing one. But what does it mean? It basically means having your money in an account that wraps around your investments, offering them protection from tax as long as the cash stays within those wrappers.

ISA investors are allowed to invest £20,000 per annum as their personal tax allowance, and any interest or capital gains those investments make will be tax-free.

The importance of investing 200k for 5 years or more

When we consider the best way of how to invest 200k, and the risk of investing in stocks and shares, there are two popular ways of trying to mitigate any risk. One way is through diversification – ultimately, you don’t invest the entire amount in one or just a handful of companies. You invest it in several different asset types, operating in different sectors of the economy.

The other protection is time. Don’t invest for less than five years.

When you invest in the short term, you might find that when the investment ends, the stock market is depressed and has lost value. The longer your time horizon, the less likely you are to get caught out, which is why a minimum of 5-year terms (preferably longer) is recommended.

When it comes to investing, rather than simply saving, there are very few, if any, completely risk-free options.

So, if you are asking how to invest 200k if you’re willing to take a degree of risk, the answer is to invest it in stocks and shares as a long-term investment with a good degree of diversification.

How much should you pay your wealth manager?

Unless you are an expert in buying and selling stock and shares, you should seek professional advice. Before you do, make sure the wealth management company you are thinking of talking to is approved and regulated by the FCA.

The fees for stocks and shares ISAs vary from provider to provider, but with some, you can expect to pay up to 5% as an initial fee and 1% in annual management charges.

The use of robo advisors to manage stocks and shares ISAs has become popular in the last decade or so. These are not simply blind, automated services. They use technology to make processes as effective and efficient as possible, meaning fees can be considerably lower. It’s something to bear in mind when considering the best way to invest £200k for you.

FAQ

Can I retire at 60 with 200k?

Yes, you can retire at 60 with 200k but you need to consider life expectancy and what type of lifestyle 200k will get you.

What should you do with 200k?

There are several things you can do with 200k, but first you should pay off your debts. Then you can save and invest it in several investment options such as stocks and shares, real estate, high-yield savings accounts, commodities and cryptocurrencies.

Where can I invest 200k in the UK?

In the UK, you can invest 200k in stocks and shares, P2P lending, real estate, pension, ETFs, etc. You can also invest the 200k into a business.