There’s no doubt that £10,000 is a very useful sum to have available for investment – but it can build up into an even bigger pot if you invest it well.
Exactly how you invest it will depend on all sorts of factors. For instance, you might have a specific medium term objective, such as saving for a deposit or helping children or grandchildren through higher education. Your objectives, your investment horizon and the level of risk you feel comfortable taking will all help determine how best to put that £10,000 to work.
So, how do you invest £10,000? Here we pick out 10 things to consider in order to invest £10,000 successfully and effectively.
Time
Time is what makes the difference to money. If you’re likely to be investing for at least five years or more, then more risk can be taken. But if the time horizon is shorter than that, you might be better off with a lower-risk approach where you can access your money more easily.
Risk appetite
The level of risk you take will be dictated by factors including your age, circumstances, capacity for risk and appetite for risk. There’s always some degree of risk in investing – without it, there would be no reward. If the idea of losing any money while investing will keep you awake at night, you might need to stick to lower risk assets such as cash and certain fixed income products, such as government bonds.
Diversification
The golden rule with risk is to diversify. This involves spreading your money across different assets and fund types to ensure you’re not overexposed to one company or sector. Many investment platforms offer risk assessment tools that help investors get an idea of their risk profile. For more on risk and reward, read this article.
Be flexible
We live against an ever shifting landscape of events that can and do move markets. Market movements will affect the performance of your assets, so it is wise to take a flexible approach to investment. By tracking the performance of your portfolio you can then make any tweaks to the investment strategy that are required. But avoid making emotion-driven knee-jerk decisions and try not to make too many changes, as the trading charges will mount up.
But also be patient
Investing is a long-term game, and it’s important to stay invested even when the market is experiencing fluctuations. The stock market can be volatile in the short term, but over the long term, it has historically delivered strong returns. By staying invested and resisting the urge to make frequent changes to your portfolio, you can benefit from the power of compound interest and long-term growth.
Check the cost
Charges have come down in recent years, but higher costs can still take a decent chunk out of your growth over the long term. Costs are typically lower on passive funds (such as index trackers and exchange traded funds (ETFs)), as they don’t have the same level of research or activity. When you buy funds through a platform you’ll also pay its annual fee, while some also levy charges for buying and selling investments so make sure you understand the importance of fund fees.
Take advice
Unless you are a confident investor, it makes sense to use a financial adviser to guide you through the maze of sectors, assets and products available so you can make the right choices. A professional adviser will help build and monitor your portfolio and ensure your investment decisions fit in with your wider objectives and needs. They’ll also help stop you falling foul of your investment biases. Check with the Financial Conduct Authority that your adviser is regulated.
Know what you’re investing in
We can’t be expected to understand everything about an investment, but it’s important to have some idea of what it aims to do. Every fund has a factsheet that’s updated monthly and available online and which will tell you its objectives, risk profile, the companies and sectors it invests in, its track record, fees and how it’s managed, among other features.
Active or passive?
Investment funds broadly come in two forms: active and passive, and many portfolios include both types. With active funds fund managers select investments aiming to beat the benchmark against which the fund’s performance is measured. Passive funds such as index funds and ETFs work by tracking and thereby performing in alignment with markets. There are more differences between active and passive investments to be aware of too.
Use a stocks and shares ISA
A stocks and shares ISA is a tax-efficient way to invest in the stock market. You can invest up to £20,000 per year in an ISA, and any gains you make on your investments will be free from capital gains tax and income tax. This makes ISAs a great way to build long-term wealth without having to worry about tax implications. We cover more reasons to invest in an ISA to help you make a decision.
Ready to invest £10,000?
If you’ve reviewed your options and made the decision to invest, use our comparison tools to help you find the best home for your money. If you like the idea of managing your own money, then the DIY platform comparison tools will help you find the best one for your needs.
