How to invest £50,000

If you have come into a £50,000 windfall, investing your money in the stock market can offer higher returns than leaving it in a savings account.

The CPI measure of inflation hit 10.5% in December. With the best cash savings accounts at around 5%, the value of your pot is being eroded over time.

But there are plenty of things you need to consider before investing £50k.

In this article we set out:

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What to consider before you invest

Investing your entire life savings is a very risky move. You should always have a safety net in case of emergencies and there are other things to consider too:

• Build a cash buffer of three to six months’ earnings for emergencies and keep in an easy-access savings account
• Pay off expensive debt like credit cards and personal loans
• Set aside some extra cash for things you might need to pay for in the next few years like a deposit on a house
• Contribute to your workplace pension scheme if you have one, particularly if your employer matches your contributions
• Make sure you weigh up your options, such as using some of the £50,000 to pay off your mortgage early or renovate your house to increase its value.

Once you have considered all these options, you can then think about investing. Keep in mind as well, that all investments carry a varying degree of risk and it’s important you understand the nature of these.

The value of your investments can go down as well as up and you may get back less than you put in.

Six things to think about to invest your £50,000 wisely

Below we outline the steps to help you decide how to invest £50,000.

1. What is your financial goal?

Think about what you want to use the money for.

Are you planning buy a house or invest in buy-to-let property, or pay for your children’s tuition? Perhaps you are saving for retirement?

The answer to this question is important because it will affect how long you plan to be invested for, which typically has a knock-on effect on how you invest.

Our beginner’s guide to investing is a good place to start if you are new to investing or want to brush up.

2. How long is your timeframe?

How long you are prepared to keep your money tied up in investments will affect your strategy but you should aim for at least five years. If you are saving for retirement, it could be decades.

The longer you leave your money invested, the more risk you can afford to take because you have more time to:

• Make returns on your £50,000 investment
• Weather any downturns in the market
• Let your returns compound and grow

With a short time horizon, there is a big risk that markets will have fallen when you need access to your money. If you cash in your investments when markets have dropped, you will lock in your losses.

Shorter term: If you are planning to buy a house in the next few years, consider a savings account or a tax-free cash ISA instead.

Longer term: If you are in your 20s or 30s and want to invest for retirement in your 60s, you can usually afford to take on more risk.

In the investment world, people talk about short-term, medium-term and long-term, so just to clarify:

• Short term: under five years
• Medium term: five to ten years
• Long term: ten years or more

Want to know about compound interest? Watch our video below:

3. What is your attitude to risk?

The further away you are from needing access to your cash, the more risk you can usually afford to take because a longer time horizon enables you to weather the inevitable falls in share prices.

With that said, you need to think about your:

Capacity for loss: how much you can afford to lose
Risk appetite: how you feel about losing money

Obviously no one is happy losing money, but could you stay cool if your investments fall in value every now and then?

Over the long term, capital growth is likely to be higher compared to if you’d left your money in a cash savings account. But are you able to stomach a bumpy ride?

Stock markets can be volatile, but if you don’t panic and sell at a bad time, you could earn an investment return. Is now a good time to buy shares? Find out in our article here.

4. Which tax-free wrapper should you use?

You should consider using a tax-free “wrapper” like an ISA or a pension to hold your investments. These shelter your investments from tax.

If you don’t use one of these tax-efficient vehicles, you might have to pay dividend and capital gains tax. Find out more here about the tax benefits of ISAs.

If you’re looking for a provider, discover why Vanguard and Barclays came out as our top providers for stocks and shares ISAs in our independent ratings.

Or if you are looking for a pension, Fidelity* is one of the best for ready-made pensions.

Once you have opened your wrapper, you can then select investments to go inside your wrapper.

5. DIY or ready-made investment strategy?

Broadly speaking, there are three main ways you can invest:

• DIY
• Buy a ready-made portfolio
• Select your own funds

DIY investing

You can choose to choose your own shares and bonds, but that takes time and knowledge. DIY investing is only really suitable for confident and experienced investors who have time to research the companies they are investing in.

Also bear in mind that while you aren’t paying for an expert to choose investments on your behalf, it can be expensive to buy and sell individual shares.

If you want to take the DIY approach, there are a number of asset classes you can invest your money in, including:

1. Shares
2. Bonds (both corporate and government gilts)
3. Property
4. Cash

You could buy funds instead (where a fund manager picks stocks on your behalf), or you could opt for a ready-made portfolio.

Ready-made portfolio

If you are not keen on a DIY approach, you could opt for a robo-adviser (which is a digital investment platform)

The platform will ask you a series of questions relating to your goals and attitude to risk. It will then suggest a ready-made portfolio for you.

You are usually given a choice between these approaches:

• Cautious
• Balanced
• Aggressive

Robo-advisers are a low-cost option for beginners (or those without the time or inclination to invest themselves). See here our round-up ofthe best robo-advisers.

How do ready-made portfolios work?

• Offered by online investment services such as Nutmeg* or Moneyfarm*, also known as robo-advisers
• You are asked a few questions and then given a suitable basket of investments that will be managed for you
• It can work out cheaper than picking the investments yourself – although not always
• You have less choice as to what goes into that basket.

How does a multi-manager fund work?

• A multi-manager fund is rather like getting a professional house-builder to create your home for you. The expert manager will invest in around 20 to 30 underlying funds across a range of:
  • Asset classes
  • Sectors
  • Countries
• A different mix of these will be offered depending on each client’s goals and risk appetite
• Fund managers will periodically rebalance your portfolio for you
• Bear in mind that multi-manager funds tend to be expensive

Choose your own funds

This is a bit like a cross between DIY investing and ready-made portfolios.

Each fund has an investment manager that buys and sells the underlying investments on your behalf. But you have to choose the fund.

You can choose between:

• An actively managed fund, where a professional investor selects stocks for you
• A passive fund, which simple tracks a stock market like the FTSE 100 or S&P 500. This is the cheaper option as you are not paying a fund manager to pick stocks on your behalf. An exchange traded fund is a type of passive investment.

Fees can really cut into your investment returns. Find out how here.

6. How to mitigate risk

If you are investing with a robo-adviser and are nervous about taking on too much risk, you could opt for their “balanced” or even their “cautious” portfolio.

You should also consider checking your portfolio once a year (or more often for DIY investors). You might want to make alterations if circumstances change. This is known as “rebalancing” your portfolio.

For example, if stock market prices fall you might want to buy more shares or position your portfolio to benefit when markets bounce back. Or you might want to sell assets to avoid being overly exposed to one sector or country.

If you are a DIY investor, you should consider diversifying by spreading your money across different companies, industries, asset classes, and countries.

Have you tried our investing for beginners course? Here’s module one.

“Avoid jumping out when markets hit rocky waters or you run the risk of locking in losses.”

Tom Stevenson, investment director at the fund manager Fidelity International

What is the best way to invest £50,000 in property?

Broadly speaking, there are three ways of investing in the property market:

• Buy to let: allows you to generate rental yield. There are costs and commitments of becoming a landlord so do your homework.
• Property development: where you buy and refurbish a property before selling it for a profit.
• Property investment funds: a professional fund manager collects and pools money from many investors, putting it directly in property or in commercial property shares. Check the fees first as this will affect your earnings.

Our checklist for investing £50,000

Tom Stevenson, investment director at the fund manager Fidelity International, gave us these tips for investing:

1. Keep calm

Staying invested throughout times of volatility is the best investment strategy. Avoid jumping out when markets hit rocky waters or you run the risk of either:

• Locking in losses on shares
• Or missing out on the gains when the shares bounce back.

Investing should be for the long term.

2. Don’t get risk and volatility confused

Rise and volatility are two different things:

• Volatility relates to fluctuations in asset prices
• But risk is about the overall quality of the company and its ability to stay competitive. For example, you could buy shares in a startup which would be seen as high-risk but could give you high returns if the company does well.

If you aim to cash in your investments in less than five years this is where volatility and risk become interchangeable. In that case it’s not recommended you invest in the stock market.

3. Market corrections can create attractive opportunities

It’s important to keep your eyes open for opportunities. Be ready to buy into funds or company shares that seem to be suffering but also look well placed to recover strongly.

If it means picking up promising assets at bargain prices, volatility can be your best friend.

4. Drip-feed your portfolio

One way to mitigate uncertainty is to remain committed to investing set amounts of money on a regular basis. So rather than invest £50,000 as one entire lump sum, you should drip feed money into the investments.

This way you remove the risk of committing a large amount just before markets plunge and you take away the temptation to try and time the market.

You also create the opportunity to benefit from pound-cost averaging by picking up more units in your investments when prices are low.

5. For income seekers, dividend-payers are the way to go

Dividends are generally based on company performance, so you can still expect a payout even when markets are volatile.

The second advantage is that dividend-payers tend to be robust, global brands that generate profits from a range of products and services. This means they are less vulnerable to the movements in a particular market and also add some diversification to your portfolio.

6. Reinvest your income

This allows you to benefit from the power of compounding works. This is the snowball effect where you reinvest your returns and let them grow and generate their own returns.

This can significantly boost your portfolio, turning small but consistent financial commitments into a considerable amount of money over time.

7. Don’t be swayed by sweeping sentiment

Following the herd can work against you. Just like trends in fashion and music, investment themes can fall in and out of favour, so can investment trends.

Investors should be selective and not let their judgement become clouded by the euphoria of the market.

For more tips on setting up an investment portfolio, read our beginner’s guide to investing.

Is it worth paying a financial adviser?

If you are confused about what to do with your £50,000, you could always speak to an independent financial adviser.

An adviser can benefit you by:

• Looking holistically at the current and future state of your finances to better advise you
• Knowing more about what options are available and suitable to you
• Helping you to grow your money, while saving you time, effort and worry
• A financial adviser might rebalance your investments for you

Financial advisers aren’t only for the rich, although some only offer their services to those with a minimum level of assets. They do cost money, but the financial advice should be worth it in the long run.

Websites like Unbiased* and Vouchedfor are a good place to find an adviser, although do your own research too and ask friends and family for their recommendations.

How to invest £100,000

Should you find yourself with even bigger sum of money, there are additional things you will need to consider.

While the principles to invest £50,000 and £100,000 are broadly similar, says Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, “arguably the greater sum offers the opportunity for more flexibility over your investment horizons.”

You could, for example, choose to invest a larger sum in emerging markets, says Streeter. These are seen as higher risk as they are at an earlier stage of development. However, they offer significant long-term growth potential, as they are continuing to evolve and compete with their western counterparts. You can read more about investment trends 2022 here.

You will likely still need to ensure that you:

• Have an investment horizon of a decade or more
• Won’t need immediate access to your money
• Have an overall portfolio that is well diversified
• Are comfortable with the level of risk

The importance of diversification

“Don’t put all your eggs in one basket in terms of geographies and sectors,” warns Streeter. One way of looking at it is “viewing individual stocks as side dishes to your well diversified main plate of investments. 

“With a large windfall it offers the chance to diversify even more, particularly by investing in more funds and potentially expanding your portfolio from passive funds which aim to track the performance of an index, to active funds which are chosen and run by a professional fund manager.”

Other options

Before investing all your money into the stock market, there are other options that it might be wise for you to consider first:

• Repaying any expensive debt
• Having a cash buffer of 3-6 months of essential expenses in an easy access account (1-3 years worth if you are a retiree)
• Topping up your pension
• Paying off some of your mortgage, especially if you are not locked into a longer term low interest rate

Getting financial advice

If you feel you don’t have the time, knowledge or confidence to manage your investments yourself, then it might be worth paying to speak to a financial adviser.

“When faced with a big windfall, there may be a temptation to be influenced by tips on swirling on social media and to speculate with some of the money,” says Streeter.

“It’s very important that you seek out information from regulated platforms and sources. Don’t just follow herd instincts but look at investing as a long term strategy, rather a chance to make a bet to achieve a short term gain.” 

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