By reading this guide you’ll have a better understanding of the best way to invest £100k and the potential pitfalls of investing a lump sum of this size.
Based on previous data, there’s a good chance that investing £100k wisely initially will produce a much higher return than if you simply left it in a savings account over the long term.
If you are looking to step onto the first rung of the investment ladder, or want to expand your existing investment portfolio, we can help provide some ideas of options available for a £100k lump sum.
£100,000 is a great deal of money for the majority of people, so it’s important to spend time looking at different options, and seeking additional advice if you are not an experienced investor.
Unless you are savvy, your first step should probably be to find an independent financial adviser (IFA) to help you, as you may need a strategy bespoke to your needs and current situation.
Compare Our Top 10 UK Investments For £100,000
Here are the general pros and cons of different investment options to get you started.
The exact nature of your investment will depend on several factors, such as how much access you need to your money, and the exact level of risk you’re prepared to chance.
If you are willing to invest your money for a minimum of five years, the most tax efficient solution is usually a combination of shares, ISAs and pensions.
If you are older, you may prefer some income generating options such as bonds, property or specialist income-generating funds.
Investing in pensions will provide you with an initial tax relief. This will be your marginal rate, which means they’re most beneficial to high-rate taxpayers.
If younger it makes sense to start paying regularly into a pension as soon as possible. If you are over 60 on the other hand, it’s likely that you’ve already either got a pension or cannot pay into one any longer!
- They are, however, inflexible; once your money is invested, you can’t access it.
- The maximum you can invest in a pension each year varies, but it is usually up to £40,000.
An alternative is the Lifetime ISA, but this carries stricter limits and probably is not suitable for a lump sum of this nature unless you are a first time buyer looking to save further.
Stocks and shares ISAs
Stocks and shares ISAs are also tax efficient.
They have the added benefit of allowing you to access your money at any time. For the 2017/18 financial year, your allowance for stocks and shares ISAs will be £20,000, including any funds placed in cash ISAs.
For the 2017/18 financial year, your allowance for stocks and shares ISAs will be £20,000, including any funds placed in cash ISAs.
What to do with the rest of the £100k
£100K is far more than anyone can invest in pensions and ISAs in a tax effective manner in a single year. You may choose to invest as much as you can in this way, and then invest the remaining amount elsewhere.
With that kind of money to play with, you could build an investment portfolio with the remaining money.
This is the most effective way of mitigating risks, as you are spreading your investment across different areas. Rather than placing all your eggs in one basket, you have many baskets and a few eggs in each.
Investment Bonds are an Income Generating Option for £100k
Investment bonds allow you to invest lump sums, generally starting at £5-£10K as a minimum, but terms and conditions do vary.
There are various types of bonds available:
- Premium Bonds – Run by NS&I
- Fixed Rate Bonds – Usually have a fixed term of 3-5 years and issued by banks. May be protected by FSCS.
- Corporate Bonds – Company issued bonds which can be traded
- Gilts – Government Issued Bonds
- Mini Bonds – Non-traded corporate bonds
Mini-Bonds provide a way for you to lend a business money directly. They are essentially an IOU, sold to investors by companies. A mini-bond generally has a 3-5 year term, and you will earn regular interest for the lifetime of your mini-bond.
The NS&I no longer provide pensioner bonds, and their 3 year investment growth bond has a maximum of £3,000. So although a safe investment, you’d not be able to invest the whole hundred thousand into them.
At the end of a bond’s term, you will receive your initial investment back, as well as additional interest in a lump sum. Different bonds have varying risk profiles, so as with any investment, complete research on the track record and experiences of other investors before committing.
When purchasing shares you can mitigate your risks by investing in a range of different shares. For example, you might purchase shares in large businesses, but also in small businesses or even promising start-ups.
You can also purchase shares in different types of business, ensuring a disaster in one industry doesn’t spell trouble across your whole portfolio.
By choosing share options in different geographic regions you can further vary your portfolio, ensuring that disasters befalling one region don’t affect all your shares.
Fixed Interest Savings Accounts
Fixed interest savings accounts can be very wise investments. They generally require you to agree to place your money in trust for a set period of time. There is no way to access it before that time has elapsed.
In return, you will receive a considerably higher interest rate on your money than you would if it was placed elsewhere. This is a very wise choice for at least part of your £100K, and it guarantees you a very good return.
Investing £100,000 into Property Investments
Obviously, property can be an excellent investment for a sum of large sum like £100k.
There are several factors to consider, however.
People do not say location, location location for nothing. So take into account the location and type of property you are buying.
As 100k does not stretch far for property in most places in the UK at this time, consider whether your investment will allow you to purchase the property outright, or leave you with a mortgage to pay.
In the likely even that there is a mortgage to pay, it can still be a worthwhile investment, but you must be certain you can meet the repayments without putting a strain on your finances.
Will the property be occupied or not? An empty property can quickly fall into disrepair, and lose value.
A rented property could provide additional income to you, but it’s not without its risks. You’re banking the farm on having well-behaved tenants who care for your investment and pay their rent. It’s a complex area and due to tax changes it can be less lucrative as it was in the past.
Another potential downside is that there has been a relative cooling with sentiment with the UK housing market at this time. Although of course, that again does depend on location and price of the property.
Also, consider the difficulty in accessing your funds. Property sales can be long winded and difficult.
Achieving a quick sale usually means accepting a lower price. If you’re investing in property, be certain you won’t need access to that money anytime soon, and be sure to look into alternative ways of investing in this market.
Invest £100k into Income-generating Funds
If you’re comfortable with medium-risk investments, adding a selection of income-generating funds to your portfolio is a good way to add diversity.
Although this sector has cooled recently, £100 grand could still provide some income. You’d have to understand into the tax implications though, unless you’ve managed to hold in an ISA previously mentioned, as this will generate returns greater than the personal savings allowance.
Of course you’ need to split such an investment over 5 years, as currently you can only deposit £20,000 a year into a stocks and shares ISA.
Selecting eight to ten income generating funds, again over a range of areas, can be very profitable indeed. If you don’t require access to the income immediately, it’s a very good idea to reinvest that income to compound your investment results.
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs)
For the high-risk investor, VCTs and EISs are a great way to earn high levels of interest on your investment, as well as further diversify your investment portfolio.
Both these forms of investment come with the benefit of an initial 30% income tax relief, as well as tax-free capital growth. That being said, the tax benefits can easily bamboozle you into investing.
Be certain you understand the risks involved in VCTs and EISs before you take the plunge – yes, they have excellent benefits in terms of tax, but they generally involve investing your money in unquoted businesses and small ventures. This can be very risky, especially if you’re at all unsure of what you’re doing.
This can be very risky, especially if you’re at all unsure of what you’re doing.
If you’re concerned or unsure about how to invest your £100k, expert advice should be sought from an FCA-approved financial advisor.
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