Whether you've inherited it, saved it up over time, or won it in a game show, you're now faced with the exciting but daunting task of figuring out how to invest £100,000.
Don't worry, though – you're not alone. Many people find themselves in a similar position and aren't quite sure where to start. Should you put it all in stocks, or would it be wiser to diversify your portfolio with a mix of REITs, bonds, and ETFs? And what about ISAs – are they worth considering? The options can be overwhelming.
In this article, we'll explore the different ways to invest £100,000, weigh the pros and cons of each option and look at the best investment platforms for each. From building a diversified stock portfolio to investing in REITs for reliable rental income, we'll explore the best ways to invest £100,000 and help you make your money work for you.
Factors to Consider Before Investing £100,000
Deciding how to invest your £100,000 requires careful consideration. Here are 4 key factors to consider when making an investment decision:
1. Your Risk Appetite. What type of investor are you? Are you comfortable with high-risk investments or do you prefer lower-risk options?
Your risk appetite sets the tone for your overall investment strategy and will influence the type of investments you make. Risk-averse investors may prefer assets like blue-chip stocks and mutual funds which offer slower, steadier returns. Conversely, those with a higher risk tolerance may be more comfortable investing in assets like cryptocurrencies or penny stocks.
2. Your Investment Goals. What do you hope to achieve by investing your £100,000? Do you want to generate income or are you looking for capital appreciation? Short-term goals such as retirement savings usually require a different approach than long-term goals such as creating a college fund.
3. The Risk-to-Reward Ratio. This ratio compares the potential returns of an investment to the amount of risk you are taking on. It's preferable to identify opportunities that allow you to get high returns with low risk. Consider this ratio carefully and determine if it is in line with your goals and risk profile.
4. Your Time Horizon. Time horizon refers to the length of time you plan to hold on to an investment. If you are planning a short-term investment, then you may be more concerned with short-term gains rather than long-term capital growth.
On the other hand, if you plan to invest in the long run, then it is important to select assets that have the potential for strong returns in the long term.
It's best to strike a balance between liquidity and volatility when investing because you’re able to take advantage of high potential returns while limiting your risk exposure.
Liquidity is often described as the ability to buy or sell an asset quickly with minimal price fluctuations. Generally, conservative investors prefer liquid assets such as blue-chip stocks and major currencies to illiquid assets like low-cap cryptocurrencies.
This is because high liquidity reduces the likelihood of erratic price fluctuations, and makes trade execution easier as there are many participants in the market.
Volatility is a measure of how much the price of an asset or portfolio tends to change over time. Highly volatile investments can provide significant gains if managed well but also come with a high risk of loss.
Therefore, it is important to understand the risks associated with investing in highly volatile markets before making any decision.
Active Ways of Investing £100,000
1. Build a Stock Portfolio
Investing in stocks and shares can be a great way to grow your wealth over time. Stocks represent ownership in a company and can yield dividends or capital gains, depending on the performance of the company. When building a stock portfolio, it's essential to find a reputable trading platform and diversify your holdings to spread out risk and balance your returns.
One way to diversify is to invest in both value stocks and growth stocks. Value stocks are typically established companies with stable earnings, which can result in higher dividends and lower risk. In contrast, growth stocks tend to be newer companies with high potential for growth, but with lower dividends and higher risk.
To create a balanced portfolio, you should allocate your investments across both types of stocks. While the ideal balance depends on your investment goals and risk tolerance, it's generally recommended to have a mix of around 70% value stocks and 30% growth stocks.
It's important to conduct thorough research before investing in individual stocks. You can analyse a company's financial health, earnings reports, and industry trends to make informed decisions.
Remember that investing in stocks involves risk, and the value of your investments can fluctuate over time. It's important to invest for the long term and to maintain a diversified portfolio that aligns with your financial goals and risk tolerance.
Fineco Bank - Best Platform to Get Started With Stocks
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 8.7 | Visitfinecobank.com |
2. Invest in Bonds to Generate Income
Bonds are a type of debt security that can be an attractive investment for those looking to diversify their portfolio and earn a steady income. Bonds provide investors with regular payments known as coupon payments, plus the return of principal when the amount gets mature.
There are several different types of bonds available, such as corporate bonds, government bonds, municipal bonds, zero-coupon bonds, and floating rate notes (FRNs).
Corporate bonds are issued by companies to raise capital. They typically pay a fixed rate of interest over the life of the bond which is often higher than other types of investments.
Government bonds are issued by national governments or agencies, associated with low risk and lower returns than corporate or municipal bonds. In the UK, government bonds are called gilts because the original certificates issued by the British government had gilded edges.
Municipal bonds are issued by state and local governments with the motive to raise capital for projects such as highways, bridges, or hospitals. They usually offer higher yields than government bonds due to the fact that they are tax-free.
As with any investment, there are associated risks with investing in bonds. The primary risk associated with investing in bonds is the market risk – the possibility that interest rates will increase throughout the life of the bond, causing its value to decrease before it matures.
When investing in bonds, it’s important to do your research and understand the risks involved as well as factors such as creditworthiness, liquidity, and inflation. It’s also important to have an investment strategy in place so that you can make informed decisions about which bonds to buy and sell.
AJ Bell - A Great Choice for Bonds
| Name | Score | Visit | Support | Mobile | Security | Commission | Disclaimer | |
|---|---|---|---|---|---|---|---|---|
 | 7.9 | Visitajbell.co.uk | Phone, Live Chat, Email | Android, iOS | 2FA, Biometrics |
3. Give REITs a Chance
Real estate investment trusts (REITs) are companies that own and manage real estate assets in the form of office buildings, malls, hotels, apartments, and other types of investment properties. These trusts offer investors a way to invest in real estate without the need of buying a physical property or take on any management responsibilities.
Investing in REITs can be advantageous for many reasons. They can provide stable income streams through dividends and potentially generate capital gains as well. Additionally, they often have a low correlation with other stocks and investments and are an attractive option for those looking for diversification.
When researching REITs, it’s important to look at factors such as the trust’s performance, liquidity levels, and dividend history. Additionally, you should examine the underlying properties that make up the REIT portfolio which will help you gain an understanding of the trust’s overall strategy and assess the potential risks.
How to get started with REITs
REITs can be purchased directly from the company or through a brokerage account. Publicly listed REITs can be traded as parts of an ETF or mutual fund, and usually have to register with His Majesty's Revenue and Customs (HMRC). Private REITs are offered by private firms which may have low liquidity and high initial investment costs. These can be purchased directly from the company or through a private broker.
eToro - Best Platform for Investing in REITs
Passive Ways of Investing £100,000
1. Diversify With ETFs
Exchange-traded funds (ETFs) are a type of mutual fund that tracks an index, commodity, or basket of assets. ETFs offer investors the ability to diversify their portfolios and gain exposure to various markets without needing to buy into individual stocks. Think of them as a bundle of assets that you can buy and sell in a single transaction.
When researching ETFs, it’s important to understand the types of ETFs available, such as sector-specific ETFs, index ETFs, and currency-hedged ETFs. You should also look at the fund’s holdings, expense ratio, liquidity, bid/ask spread, and tracking error. This will help you make an informed decision about which ETF is right for your portfolio.
Many companies offer ETFs, so it’s important to compare the offerings from different providers and find the one that meets your needs.
IG - Best Platform for Trading ETFs
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 8.9 | Visitig.com | Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. |
2. Let a Robo-Advisor Take the Lead
Robo-advisors are automated online investment services that use algorithms to develop and manage portfolios for their clients. They provide access to professionally managed portfolios as well as tax-optimized strategies.
Additionally, they offer features such as automatic re-balancing and tax-loss harvesting, which help optimise investment performance while minimising taxes owed on realised gains.
These advisors can help you create a diversified portfolio based on your risk profile, financial goals, and time horizon.
Besides portfolio management, trading robots can be used to automate several aspects of trading and investment. From risk management and stop loss placement to order entry and execution, trading robots can help maximise returns while minimising the time required to manage investments.
It’s important to understand that automated trading systems often need to be customized and monitored to ensure they are performing as expected.
Hargreaves Lansdown - Top Robo-Advisor Choice
Tax-Advantaged Ways of Investing £100,000
1. Max Out Your ISAs
ISAs are tax-free savings and investment accounts that allow people to save and grow their money without being charged any taxes on the interest earned.
The idea behind a stocks and shares ISA is that you’ll get more bang for your buck as there won’t be any deductions from the government or other organizations taking a cut of your earnings. This makes them particularly attractive compared to regular savings accounts which come with very low-interest rates and often require hefty fees.
There are several different types of ISAs, each with its own advantages and disadvantages. Cash ISAs are the most common type and offer a safe way to invest your money without risk. This is because they are backed by the UK government up to £85,000 per person. However, they also offer low returns when compared to other investments such as stocks and shares.
Stocks and shares ISAs can be riskier but also come with potentially bigger rewards depending on how well the stock market is performing. You can also spread your risk across multiple stocks or funds to make sure that any losses are minimised if one particular company isn’t doing too well.
FreeTrade - Best Low-Cost Stocks and Shares ISA Account
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 7.6 | Visitfreetrade.io | The value of your investments can go down as well as up and you may get back less than you invest. |
2. Consider SIPPs
SIPPs, or Self-Invested Personal Pensions, are a popular investment vehicle for retirement savings in the UK. With a SIPP, you have control over your investments and can choose from a wide range of assets, including stocks, bonds, and funds.
If you're looking to invest £100,000, putting a portion of it into a SIPP could be a smart move. One key reason is the tax benefits that come with investing in a SIPP. Similar to ISAs, contributions to SIPPs are tax-deductible, meaning you can reduce your tax bill by investing in your pension. Plus, any gains you make within your SIPP are tax-free, and you can take up to 25% of your SIPP as a tax-free lump sum when you retire.
Another advantage of investing in a SIPP is investment control. With a SIPP, you have full control over your investments, so you can choose where to allocate your money based on your personal financial goals and risk tolerance. This level of control can be particularly appealing to those who want to take a more active role in managing their retirement savings.
Finally, SIPPs offer flexibility. You can start taking withdrawals from your SIPP from age 55, giving you more flexibility in retirement. This can be particularly appealing if you want to retire early or have other plans for your retirement savings.
Interactive Investor - Best Platform for Investing in SIPPs
Alternative Ways to Invest £100,000
In addition to all we've discussed so far, there are a few other ways to invest your £100,000;
1. Launch a Franchise
Investing in a franchise is an alternative way to start a business without having to start from scratch. When you invest in a franchise, you are essentially buying into an established business model that already has a proven track record of success. With a franchise, you get the benefit of brand recognition, marketing support, and operational guidance. The initial investment in a franchise may vary depending on the industry, but it is possible to start a franchise with an investment of around £100,000.
2. Invest in Yourself
Investing in yourself can be a wise investment that can have long-lasting benefits. It involves taking steps to improve your knowledge, skills, and expertise in your chosen field. You can use your £100,000 to take courses, get certifications, or enrol in a degree program to improve your earning potential. Investing in yourself could also include taking steps to improve your physical and mental health. This may involve hiring a personal trainer or joining a gym, or investing in therapy or other mental health services. The returns on investing in yourself are numerous and can range from increased earning potential to improved overall well-being.
3. Invest in Collectibles
For those with a passion for art, antiques, or rare items, investing in collectables can be an interesting and potentially lucrative option. Collectables can appreciate in value over time, and investing in them can be a way to diversify your investment portfolio. However, it's important to be aware of the risks and challenges associated with investing in collectables. Their value can be subjective and can fluctuate with the market demand. Additionally, the costs associated with maintaining and storing collectables can be high, and you need to have a solid understanding of the market and the items you are investing in before making any purchases. Investing in collectables can be a high-risk, high-reward option that requires careful consideration and research.
Final Thoughts
Ultimately, the decision of where to invest your £100,000 depends on your personal financial situation, investment goals, and risk tolerance. It's important to do your research and seek advice from a financial advisor before making any investment decisions. Remember to diversify your investments across different asset classes and not put all your eggs in one basket. With careful planning and a long-term mindset, investing £100,000 can be a smart move towards securing your financial future.
