What UK investments have the highest returns? Please read on to find out more and potentially enable you to get the best performance from your investment portfolio.
| Are high-return investments risky? | All investments come with risk |
| Are there safer high-return investments? | Definitely |
| What level of risk tolerance is associated with high-return investments? | Moderate to Aggressive |
| How can I limit high-return investment risk? | Through diversification |
Where to invest money in the UK to get good returns
If you are looking for high-return investments in the UK, they are available, but most come with increased risk. Generally speaking, the higher the return, the higher the risk, particularly when it comes to volatility.
Whatever your investment profile, there is a wide range of investment options open to you. We shall discuss a few of the vehicles available to help you decide which ones best suit your investment profile. But let’s begin with the elephant in the room – volatility.
Volatility – Its meaning in the financial sense
If you are new to investing, the meaning of volatility, in the investment sense, refers to the propensity of a certain security or market index to change in value over a specific period. So, when people talk about a volatile market, it’s one where big swings (up or down) are prevalent.
Everyone loves a big swing in the upward direction, but not so when it’s downward because it means you could be losing money. Volatility can be low, medium or high.
The volatility of high-risk investments in the UK and worldwide is about a change in value over a certain period. The way of measuring it is to establish the standard value deviation and multiply it by the square root of the period being analysed. You can check out this page for a more detailed explanation.
The most risky high-return investments in the UK
Given the nature of volatility, it is not easy to pick out the best high-return investments in the UK because they constantly change. However, so-called “Tech Stocks” can be one of the best market sectors, as many have proven by withstanding and benefiting from the COVID pandemic’s effects.
A handy article entitled “17 Best High-Yield Investments for 2023 (Least to Most Risky)” on Stash.com is available to familiarise yourself with the volatility of the various market sectors. There is also an infographic on the page with a pictorial view in a triangular form showing cryptocurrency at the top of the apex.
The cryptocurrency “Solana” is an excellent example of high volatility in practice. In 2021, it climbed a massive 13,000%, from $1.61 at the beginning of the year to a whopping $259.62. In September 2022, it was trading at $33.69. It doesn’t get much more volatile than that. Depending on when you made your investment, you could have made a massive gain or a massive loss.
All cryptos are the same to one degree or another – high risk. You certainly could not think of them as safe investments with high returns. Still, you could include them in your investment portfolio, along with other less volatile shares, to diversify the overall risk.
The role bonds play in the investment world
Corporate and government bonds could hardly be called high-interest investments for UK investors. But they pay better interest than some savings accounts. Generally, the longer the maturity date of a bond, the higher the interest rates. So, to get the best returns on your investment you may have to invest in bonds with up to 5 years of maturity or more. Even then, the interest is still relatively low-key.
As one of the less risky investments, the UK government’s 10-year bond weighs in with a 3.81% interest rate (removed text). But it doesn’t yield much more than Cash ISAs like the Yorkshire Building Society’s fixed rate Cash ISA, which offers 3.5% fixed interest until the 30th of October 2025. After that, of course, it will revert to a lower rate.
Bonds are qualified by a letter-based rating system. Top quality bonds like government bonds are AAA rated, while corporate bonds with a BBB rating are considered investment bonds, as per the YBS bond offerings referred to above. Bonds with lower ratings between BB+ to D are considered to be the high-return bonds UK investors can access. They are also referred to in the USA as Junk Bonds.
How to Invest £10,000 in the UK
If you managed to save £10,000 or thereabouts and have it in a savings account, you need to think again. With inflation approaching 10%, your money will lose real value. So you should think about perhaps opening a Stocks and Shares ISA. But remember, investments always carry some element of risk. Since your capital is at risk, your expected return may differ from your actual return.
What you can do investment-wise with £20K here in the UK
If you’ve got £20,000 you could invest, there are many options open to you, but first of all, before you do anything, you would be wise to clear off any debts you have – particularly any debts you’ve run up on credit cards.
Credit card companies charge an average interest is 18.17%, but some charge as much as 30% or higher. It’s way above the sort of interest you’ll get from most investments, even high-return investments in the UK, so it makes simple sense to get rid of any high-interest debt like this first.
Once you’ve cleared any debts you can afford to, other things you can do with, say, £20,000 include:
- Adding money to your retirement account (if you have one)
- Entering into peer-to-peer lending
- Entering the property investment market
The invest in property option is an interesting one. You might not have enough to purchase a whole property, but you could invest in a REIT – Real Estate Investment Trust.
Investing in property from £20,000 or less
Investing in real estate and property is one of the relatively low risk high-return investments UK investors can opt for as long as they are prepared to invest long-term. Providing you are willing to wait and bide your time if markets decline, they usually eventually recover and climb higher.
When you invest in property by buying a share in a REIT, you become a part-owner of a company with the legal and financial rights you are entitled to. REITs differ from other funds through specific rights.
- 75% of the profit that REIT companies raise has to come from rental income.
- 75% of the business’s assets must be in rental properties
- 90% of the business’s rent profit has to go to shareholders as dividend payments.
Putting your money into REIT investment enables you to earn twofold. Firstly, from any gains in the fund’s value, and secondly, from dividends. You can also invest in REITs by including them in a Stocks and Shares ISA portfolio.
How can you double your money quickly?
The safest way of doubling your money is through long-term investing. However, you need to be aware that there will always be an element of risk. But if you are in a rush, waiting for a long-term investment to do its thing will not appeal. Your alternative is short-term speculation, but that can be even more dangerous, particularly if you are an investing newbie.
The speculative high yield investments UK and global investors are able to access can lose value just as quickly as they gain it. Solana, the cryptocurrency we mentioned earlier, is a prime example. So as far as an investment strategy goes, putting your money into this type of investment is extremely high risk.
One of the best high-return investments for UK investors is Stocks and Shares Individual Savings Accounts, or Stocks and Shares ISAs for short, which, as the name suggests, are aimed at the stock market. These Stocks and Shares ISAs can be viewed as a high return because of the application of compound interest over the long term.
Compound interest is often described as providing interest on interest. You can read more about compound interest and how it works by checking out our article “What is compound interest? How it Works and How to Calculate it”
As has been mentioned on several occasions throughout this text, any investment carries risks, and Stocks and Shares ISA s are no exception. But two things mitigate risk to a certain extent – diversification and investing long-term.
A stocks and share ISA investment portfolio comprises equities in many companies across various market sectors. That gives you diversification and investing over several years (a minimum of 5) and gives you the long-term element– the longer, the better.
The beauty of compound interest
Just suppose you had £100K. If you invested it in a Stocks and Shares ISA, and your ISA earned 7% interest in one year, it would add £7K to your capital sum. Next year that £107K would earn interest and get added on, and so forth. If you had £1 million, that same 7% interest would earn you £70K, etc.
As you can see, at these levels and over the long term, Stocks and Shares ISAs really can be considered some of the best high-return investments UK investors can enjoy, and tax efficiently too because the capital gain below £12,300 and the income/growth below £12,570 are tax-free, as are any withdrawals.
Because you can invest your money in sums to suit your circumstances, and you can withdraw as much as you like as and when you need it when it comes to your short vs long financial needs, these types of investment funds cater for both.
Understanding the Tax Implications of High-Return Investments in the UK
When it comes to growing your wealth, it’s not just about the returns you make but also about the amount you get to keep after taxes. In the UK, various types of investments are taxed differently, and understanding these nuances can significantly impact your net gains. Capital Gains Tax (CGT) is a critical factor to consider, especially when you’re dealing with high return investments.
The tax rate for CGT can range from 10% to 20% for most assets, depending on your income tax band. However, for property investments, the rate can go up to 28%. It’s essential to note that each individual has an annual tax-free allowance, known as the “Annual Exempt Amount,” which for the tax year 2021-2022 was £12,300.
Beyond this threshold, you’ll need to pay CGT on your gains. Another tax to consider is the Income Tax on dividends if you’re investing in stocks. The tax-free Dividend Allowance is £2,000, and beyond that, the rate varies between 7.5% and 38.1%, depending on your income.
Lastly, don’t forget about the Stamp Duty Land Tax if you’re investing in property, which can add a significant cost upfront. Being aware of these tax implications can help you make more informed investment choices and potentially save you a considerable amount of money in the long run. Therefore, always consult a tax advisor to understand the full scope of tax liabilities associated with your investment portfolio.
Where should you invest £100,000 right now?
Suppose you want to know how to invest £100,000 or how to invest money generally. In that case, you should seek professional financial advice from a wealth specialist company that is authorised and regulated by the Financial Conduct Authority. Whatever savings and investment vehicles they recommend, check they are covered by the FCCS (Financial Services Compensation Scheme.
FAQ
What are high-return investments?
High-return investments are assets that generate great returns on your initial investment.
What are the most common high-return investments?
The most common high-return investments include stocks, bonds, high-yield investment and savings accounts, and real estate.
How do I generate the highest returns on my investments?
Managing your investments’ risks is an important way to effectively maximise the potential returns on your investments. If you can quantify investment risk, you’ll be able to increase your portfolio’s allocation to riskier assets that yield higher rates of return than safer investments.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
