How To Invest £10,000 – Forbes Advisor UK


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You may have recently received a windfall bonus, inheritance or even been fortunate enough to win a prize draw that’s left a lump sum of £10,000 burning a hole in your pocket.

Where you already have money at your disposal beyond your day-to-day living expenses and a rainy day fund stashed away for emergencies, investing is a way to help you achieve your long-term financial goals. 

An amount such as £10,000 is not a life-changing sum of money. But, invested wisely, it could grow into a useful nest egg. Here’s a look at some of the options available.

Remember that investing is speculative, not suitable for everyone, and that it’s possible to lose some or all of your money.

1. Consider collective investments 

Funds, investment trusts and exchange-traded funds (ETFs) each fall under the mantle of ‘collective investment’ scheme. 

In other words, each pools the contributions from numerous investors allowing the overall pot of money to be invested by a professional fund manager in a ready-made portfolio across various asset types. These include bonds, property, commodities and shares, or a combination of each.

Ryan Lightfoot-Aminoff, senior research analyst at research provider FundCalibre, points to the benefit of outsourcing investment decisions to a professional fund manager “who will look to create a balance of different companies, industries and revenue drivers to generate above market returns.”

He adds: “Investors can also benefit from economies of scale when it comes to fees, which

can often be a prohibitor to investors who are regularly trading.”

Collective investments can be split into two according to the way they are managed:

  • Passively-managed: also known as tracker or index funds, these aim to copy the performance of a particular stock index. For example, by buying shares in the companies that make up the UK’s FTSE 100 index. 
  • Actively-managed: these funds aim to outperform a benchmark (such as a certain stock index) by choosing a basket of stocks. 

Because of the way they are administered and run, active funds tend typically to be dearer to invest in compared with their passive counterparts. 

Passive funds, as a rule of thumb, charge between 0.1% and 0.2% of an upfront investment, whereas the figure for active funds is more likely to be 0.5% to 1%. 

For passive funds, this equates to £10 to £20 for a £10,000 lump sum, compared with £50 to £100 for an active fund.

Passive and active funds divide opinion and it’s a hotly-debated topic as to whether active funds beat their passive counterparts in order to justify their higher fees.

It’s worth taking the time to find the best trading platform to buy and hold these investments, as trading and platform fees can vary significantly.

The investments can also be held in tax-efficient wrappers such as Individual Savings Accounts (ISAs).

2. Invest in shares

Buying individual shares is higher-risk than investing in funds, however, it can be a good way to invest £10,000 if investors have the time and knowledge to research public companies. 

FundCalibre’s Mr Lightfoot-Aminoff says: “Investing in individual stocks can come with a much greater upside potential”. But he goes on to warn would-be investors that “you are taking on significantly greater risk”.

It’s still important to diversify your portfolio, in other words, spread your investment over a mix of companies from different sectors. If one company or sector is underperforming, this will hopefully be offset by another sector performing well.

As with funds, shares can be held within tax-efficient ISAs. Similarly, they should be seen as a long-term investment of at least five years to smooth out any rises or falls in the stock market.

3. Invest in bonds

Investing in bonds could be a useful way of generating an income and capital return from your £10,000.

Bonds are a form of loan that pay interest in the form of a ‘coupon’, usually once or twice a year. At the end of the term, the bond issuer will repay the original ‘face value’ of the bond. Once a bond has been issued it can be traded on a market.

Noelle Cazalis, manager of the Rathbone High Quality Bond Fund, says: “Bonds tend to be less volatile than equities, which is why they are often favoured by conservative investors.” 

Ms Cazalis adds that: “Bonds also often exhibit low correlation to equities.” This means that they tend to behave differently at same times in an economic cycle. As such, bonds can therefore be used to diversify against an existing portfolio of equities.

There are two different types of bonds available:

  • Government: known as ‘gilts’ in the UK and ‘Treasuries’ in the US. Government debt is generally regarded as a safer investment than corporate debt (see below) and therefore typically pays a lower interest rate, typically 1-2% over the last five years.
  • Corporate: these bonds are issued by companies looking to raise cash. ‘Investment-grade’ debt – as measured by independent ratings agencies such as Moody’s – is rated safer than so-called ‘junk’ bond status. Investors can therefore expect a higher rate of interest from companies that offer the latter to make up for this. 

Although neither the UK, nor the US government, has ever defaulted on one of its bonds, they are not a risk-free investment. It is possible for the bond issuer’s to default on the interest or final repayment if they run into financial difficulties.

Like shares, the price of bonds fluctuate once they start trading, allowing them to trade at a premium or discount to their ‘face’ value. Interest rates have a strong influence on bond prices – if prevailing rates rise above the coupon rate of a bond, the bond will become less attractive to investors and its price will fall. 

As a result, this means that the ‘yield’ (calculated as the annual rate of interest divided by the market price of the bond) will rise. The yield is an approximation of the effective interest rate you will receive on a bond based on its current price.

Although rising interest rates have taken their toll on bond prices this year, bonds may become increasingly attractive once interest rates start to fall again. 

Hal Cook, senior investment analyst at Hargreaves Lansdown, comments: “To get out of a recession, central banks are likely to reduce interest rates to boost economic activity. This should reduce bond yields and increase capital values.”

4. Invest in property

Alternatively, you could put the £10,000 towards a deposit to buy a house, however, it can be challenging to get onto the property ladder given the boom in property prices over the last few years. 

Another option is to invest in property indirectly through a real estate investment trust (REIT). 

REITs are similar to funds in that they pool investors money but invest it in a portfolio of property, rather than shares. 

Laith Khalaf, head of investment analysis at AJ Bell, says: “REITs offer investors a convenient way of buying into the commercial property market, which can be held in a SIPP or ISA. The commercial property market spans office buildings, retail spaces such as shopping malls, and industrial units like warehouses and distribution hubs.”

Mr Khalaf adds: “Investors might choose to invest in REITs for income, because commercial property tenants pay regular rents which REITs can then turn into dividends for investors. 

However, Mr Khalaf also warns: “While the price of the underlying commercial property assets might not be as volatile as shares, REITs trade on the market so they will be highly correlated with equities, which diminishes their ability to act as a diversifier.

“Commercial property is an asset which is clearly sensitive to economic developments, and will face challenging times as we enter an economic slowdown, but a lot of bad news is already reflected in the prices which many REITs are trading at.”

5. Invest in a pension

Investing a lump-sum in a pension is a tax-effective way of saving for your retirement, as the government ‘tops up’ your contributions in the form of tax relief. According to the HMRC, contributions to personal pensions hit a record high of £12 billion in 2020-2021, with an average contribution of £1,700 per person.

The level of tax relief depends on the rate of income tax you pay (all figures shown based on the current 2022-2023 tax year):

  • If you’re not a tax-payer, you can pay up to £2,880 into a pension, which the government tops up by 20% to £3,600.
  • If you’re a basic rate tax-payer, you can receive the same top-up of 20% from the government, up to 100% of your annual income (subject to certain conditions).
  • Higher-rate and additional-rate tax-payers can receive tax relief of 40% and 45% respectively, subject to certain annual limits.

The benefit of investing early in a pension is that you benefit from the power of compound returns, whereby you receive a return on your initial investment plus the previous year’s return. 

If you invested £10,000 in a pension for 10 years at an annual return of 5%, your pension pot would be worth £16,000. However, it would grow to over £70,000 if you invested the same sum and left it for 40 years.

You can invest in a pension via a workplace scheme or privately via a Self-Invested Personal Pension.

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