If you want 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, invested wisely, it can bring you a substantial regular income. To begin, the best place to start is to determine whether to invest over the short or the long term.
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 considering the short-term option, many people put their money into cash savings accounts rather than investing it.
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 are extremely – as low as 0.1% in some instances.
So, if you want 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.
So, having established that you need to invest your money, we now need to think about how to invest 200k to get you that income.
What is the best way to invest 200k?
As you can imagine, when you ask people how best to invest 200K, you are likely to get dozens of different suggestions. It can all be quite confusing, so let’s start by looking at the most common options.
The top £200k investments for 2021
When it comes to the best investment for 200k, you’ll find plenty of advice online. Obviously, 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.
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- 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: Some investors choose to invest in gold to use 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. They do, however, carry a degree of risk, something we will now look at in more detail.
Are stocks and shares the best place 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.
Getting to grips with risk
Stocks and shares ISAs are one of the most popular forms of investing for a future income. 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?
ISAs are tax wrappers
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.
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 talk about 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 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 ask yourself, I have 200K to invest, what should I do? – the answer, if you are willing to take a degree of risk, 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 ISA has become popular in the last decade or so. These are not automated services, rather they use technology to make processes as effective and efficient as possible, meaning fees can be considerably lower.