The Best Way to Invest £500k

When you are considering how to invest £500,000, there are a number of things to take into consideration.

Holding £500k in an Emergency Account

Before investing any of your money, it is sensible to set up an account with an emergency fund sufficient to allow you to live for a few months without income.

A bank account that pays a decent level of interest is ideal for this, as it allows you to keep your funds liquid and available for immediate access if required.

Your local bank branch should be able to help you get a good rate when you have funds of this size.

Use the £500k to Buy Your Own Home

One option for your money would be to buy your own home outright if you don’t already own it. This would save you from paying interest on your mortgage and would also serve as in investment.

Owning your own place would give you security and would also be an investment that would gradually increase in value over time, offering a nice inheritance for your family.

When considering inheritance implications, it is a good idea to put the property into the name of the person who will inherit, in order to avoid them having to pay inheritance tax on the value of the property.

It’s also possible to invest in property in Europe and beyond.

Use Some of the £500k to Boost Your Pension

If you have the whole of your £500k in your pension, you could risk paying out too much in tax. Plus, there are limits into how much you’ll be able to invest into a pension depending on your current earnings.

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Still, it is prudent to think long term if you wish to have a certain lifestyle in retirement.

Tax on pensions is calculated in the same way as it is on your wages. One strategy that you can use to avoid being stung for too much tax is to take out your full lump sum and drawing down the capital in order to provide a tax-free income for five years.

The remaining funds could be invested in a growth style strategy, with the aim of replacing the lump sum over this period, looking to achieve a 25% return.

When looking for suitable investment opportunities for the balance, equities tend to generate the best returns to beat inflation over the long term and should therefore form the primary component of a growth portfolio.

You could therefore consider placing 45% of your portfolio in UK equity and around 20% in US equity for an evenly spread investment.

There are a number of different avenues that you could explore when considering how to invest £500k, and it is sensible to consult an experienced and qualified financial adviser before making your final decision.

Whatever you decide to do with your cash, remember that investment markets can go down as well as up, and former successes don’t guarantee similar results in the future.

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Last updated: October 16th, 2017

Naomi Gould

Naomi was born New York and grew up in London learning to observe how businesses and finance works from her Father. Naomi now lives in the Surrey Hills and explores at weekends on her road bike.

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