The Best Way to Invest £50k in 2024

One of the most popular ways to invest is by buying shares and stocks of different companies. Shares are units of ownership that represent your stake in the company, while stocks refer to a broader category of ownership instruments, including multiple other classes of shares.

When you buy a share, you essentially become a partial owner of that business, entitling you to a portion of the company's assets and earnings. In simple terms, when the company you own shares in makes a profit, you may receive a portion of those profits in the form of dividends.

Additionally, if the company's value increases, the price of your shares may also rise, allowing you to sell them for a profit potentially.

On the other hand, if the company performs poorly or incurs losses, the value of your shares may decline, resulting in potential financial losses. This is why investing in stocks and shares is generally considered risky and can involve both opportunities for gains and the potential for losses.

While a certain level of knowledge and experience is required to be a successful stocks and shares investor, new and ambitious investors can afford to get on the stock market by investing in pre-selected funds. Professionals with the expertise manage these funds to ensure the investor’s portfolio is diversified enough to minimise potential losses.

Buying properties is another very popular way to invest. Considering that house and rent prices have been on an upwards trend for a long time isn’t hard to understand why so many people choose property investments as a hedge against inflation and the potential return in the future.

While £50,000 may not be enough to purchase an entire property outright, there are still some real estate investment options to consider with such an amount.

For example, you can use £50,000 as a down payment to secure a mortgage for a buy-to-let property. As the property owner, you can generate income through tenant rental payments. This rental income can serve as a consistent cash flow stream which you can use to pay the mortgage and potentially get a return on your investment.

Over time, as the property value increases, you may have the opportunity to sell the property at a higher price, resulting in a capital gain.

ETFs are an investment that allows investors to buy shares of a diversified portfolio of assets, such as stocks, bonds, or commodities, through a single security.

You can think of ETFs as a basket that holds a variety of investments. Instead of buying individual stocks or bonds, investors can purchase shares of an ETF, which represents proportional ownership in the underlying assets.

For inexperienced investors who don’t have the time or expertise to analyse individual securities, passively managed ETFs can be a suitable option. They will provide them with the necessary diversity to reduce risk and potentially enhance returns.

Moreover, passively managed funds tend to have lower expense ratios compared to actively managed funds, making them very cost-effective.

The only drawback is their profit potential may be more limited than other riskier investment options.

However, risky investments often require a level of capital higher than £50,000 to mitigate potential losses and take advantage of opportunities. That’s why building a solid foundation with lower-risk investments is recommended before considering riskier ventures.

Mutual funds are another moderately safe investment option that can expose investors to a diversified portfolio of assets. When you invest in a mutual fund, your money is pooled with that of other investors, and professional fund managers make investment decisions on behalf of the fund.

Essentially, mutual funds share many benefits with ETFs and offer similar risk-reward profiles.

However, some notable differences between them make mutual funds a more suitable option for investors seeking long-term investments.

While ETFs aim to replicate the performance of a specific index, a mutual fund is an actively managed fund by professional fund managers who make investment decisions based on their expertise and market analysis. This active management allows mutual funds to outperform the investment markets or target specific investment objectives potentially.

Additionally, mutual funds often have a broader range of investment strategies and asset classes available compared to ETFs. They can invest in a wide range of securities, including stocks, bonds, commodities, and alternative investments. This flexibility allows mutual funds to adapt to changing market conditions and potentially generate higher returns over the long term.

Ultimately, deciding whether to invest your £50,000 into an ETF or a mutual fund will depend on your personal investment goals, risk tolerance, and preferences.

Annuities work a little differently compared to all the other options we covered. While investing in stocks, shares, properties, and funds are an excellent way to grow your wealth, annuities focus on providing a steady income stream.

In a nutshell, buying an annuity is entering into a contract with an insurance company, where you make a lump sum payment or a series of payments in exchange for regular payments that can start immediately or in the future.

Instead of aiming for capital appreciation, annuities offer a guaranteed payment over a specified period or for the rest of your life. They are often used as a retirement income strategy or for individuals seeking predictable cash flow.

The exact return you can get for investing £50,000 into an annuity depends on factors such as the type of annuity, your age, and the prevailing interest rates. Whether or not investing your £50,000 in an annuity is a good idea depends on what you want to achieve with your investment, your current pension scheme situation, and your retirement planning.

As far as investments go, gold is often considered a safe haven during times of economic uncertainty. More than any other precious material, gold has the unique ability to hold its value over great lengths of time and has relatively low volatility compared to other commodities. With such qualities, gold can provide investors with the stability and reliability needed to preserve wealth and hedge against inflation.

While investing in gold can be profitable, it’s essential to understand that gold's return potential depends on the appreciation of its value over time. Unlike investments that provide regular income through dividends or interest, price appreciation is the primary way to profit from gold.

As a result, investing in gold can be a good idea when utilised as a long-term investment combined with other assets that complement one's overall investment strategy. By diversifying a portfolio with a mix of different asset classes, including stocks, bonds, and real estate, alongside gold, investors can potentially achieve a balanced risk-return profile.

Investing the entire £50,000 can be a safe option, though it can expose the investor to the risk of missed opportunity. Investors should entertain the idea of investing at least some of those funds in riskier but potentially more profitable options that can give them regular cash flow and liquidity.

Alternative investments is an umbrella term that encapsulates a wide range of non-traditional investment options beyond stocks, bonds, and cash. These investments often have a lower correlation with traditional asset classes and offer unique characteristics and potential returns.

Some of the more popular types of alternative investments that you can invest your £50,000 in include peer-to-peer lending, angel investing, and cryptocurrency.

Peer-to-Peer (P2P) Lending

Peer-to-peer lending is a form of lending where individuals or businesses can borrow money directly from investors through online investment platforms, bypassing traditional financial institutions.

For investors, P2P lending platforms offer an opportunity to earn through fixed interest rates and the potential for higher yields compared to traditional savings accounts or other low-risk investments.

Conversely, as an alternative investment, P2P lending comes with certain risks not present with conventional investment options, such as borrower default, platform risk, and lack of regulatory oversight.

Overall, while investing in a peer-to-peer lending platform certainly has its advantages, it’s ill-advised to allocate the entire £50,000 to it as it may lack the diversification necessary to mitigate risks and maximise potential returns. Instead, investors can consider allocating a portion of their funds to P2P lending as part of a well-rounded and diversified investment portfolio.

Angel Investing

Angel investing provides financial backing to early-stage businesses or startups in exchange for an ownership stake. As an investment type, it’s a long-term type of deal and one of the riskiest, but at the same time, most rewarding ventures when everything goes right.

Successful angel investors can make substantial profits, but they are also generally high-net-worth individuals with the financial capacity to invest in multiple startups. All it takes is for one of these startups to take off and achieve significant growth or be acquired by a larger company for the angel investor to realise substantial returns on their investment.

However, it's important to note that the majority of startups fail, and angel investors must be prepared for the possibility of losing their entire investment in the worst-case scenario.

While £50,000 is by no means an insignificant amount, angel investing is typically more suitable for investors with a more extensive capital base who can afford to allocate a portion of their funds to high-risk, early-stage ventures.

Cryptocurrency

Cryptocurrency has emerged as the latest form of alternative investment in the market. Characterised by high volatility, cryptocurrencies can fluctuate significantly in short periods, offering the potential for substantial gains while also carrying a high-risk potential.

What’s interesting about them is that cryptocurrencies are volatile by design. It’s in their nature to experience rapid price movements driven by various factors such as market demand, regulatory changes, technological developments, and investor sentiment.

As such, investing in crypto can be a speculative strategy or a part of a larger investment portfolio aimed at diversification and potentially capturing higher returns.

Clearly define your investment goals. Are you looking to generate income, grow wealth, preserve capital, or combine these? Understanding your goals will help you determine the appropriate investment approach.

Determine how long you are willing to commit your money to an investment before needing access to it. This will help you choose investments that align with your time frame, whether short-term, medium-term, or long-term.

Understand your comfort level with investment risk and how much volatility you are willing to endure. Some individuals may be more conservative and prefer lower-risk investments, while others may be more aggressive and willing to take on higher risks for potentially higher returns.

Evaluate how much you are willing to pay in taxes on your investment returns. Certain investment types, such as tax-advantaged accounts or tax-efficient strategies, may help minimise your tax liabilities and maximise your net returns.

In other words, how capable are you of making the right investment decisions on your own? A DIY approach may only be suitable if you believe you have the necessary knowledge and expertise to handle your portfolio alone. Otherwise, opting for a managed approach where professionals oversee your investments might be a better choice.

If you have an outstanding debt with crushing interest rates, simply paying it off can be more rewarding than investing the money elsewhere and hoping for returns. In some cases, debt interest rates can be so high that they will nullify your investment gains, making paying off debt a clear priority over looking for lucrative ventures.

Moreover, paying off your debt will reflect positively on your credit score, which is a huge step toward achieving financial freedom.

There is no need to further explain why putting money in speculative investments without having a safety net to fall on is ill-advised. Building an emergency fund is the priority, and if you don’t have one, you should consider investing only after building it.

Most financial advisors suggest that everyone needs an emergency fund worth at least three months of living expenses in cases of unforeseen circumstances, such as job loss, medical emergencies, or unexpected expenses.

Prioritise building your emergency savings before considering any investments to ensure financial stability and peace of mind.