How To Invest £100,000 (2024)

Those with a £100,000 lump sum should put serious thought and research into the best ways to invest it for the future.

Maybe you’ve received an inheritance, a windfall or bonus, or you’ve simply been saving over a sustained period of time. However you’ve come by your £100,000 sum, it could be a good idea to put it to use so it can grow and hopefully provide you with a substantial nest egg later in life.

Things to consider before you invest £100k

There are a number of things to think about before you start investing your £100,000 sum. You may want to get professional, independent financial advice and work out a detailed financial plan, for example.

There is a standard checklist that most financial advisors will use. It is a useful summary of things to consider before investing:

• Is any tax owed on the lump sum? Depending on how you’ve arrived by your £100,000, there could be tax due on it. Seek professional advice and set aside what’s needed to pay the bill
• Have you got a rainy day fund? It’s sensible to hold a decent sum in cash in an accessible savings account for emergencies before you think about investing
• Have you got debts? Before investing it is typically important to review what debts you have, if any, and reduce or clear them. The most expensive debts tend to be on personal loans, car loans and credit cards, for example
• Is your income protected? Consider putting protection policies in place which would help loved ones if you died or were unable to work. Cover includes life and critical illness policies and income protection plans
• What about the mortgage? Using some or all of your £100k lump sum to pay off your mortgage could make financial sense, but this depends on your personal and financial situation, so it is a good idea to get professional, independent advice.

How to go about investing £100,000

The way you’ll invest your cash is likely to depend on a number of factors including your attitude to risk, the time frame you have to potentially grow your money and the access you’ll need to your cash, your financial goals and also your personal preferences when it comes to different types of investment.

But whether you have £10,000, £50,000 or £100,000 to invest, the principles of investing remain the same:

Risk: If you’re a first-time investor it’s important to bear in mind that no investment is guaranteed to rise in value. Markets rise and fall and your initial capital investment could drop in value, particularly in the short term.

This is why investments should be viewed as medium to long-term – which means several years rather than months – so that ideally you can ride out any dips in the market.

Typically, the longer your time frame for investment the greater risk you can afford to take with your investment, although all investors will have their own boundaries and limits for what they’re comfortable with.

Diversification: The old adage about not putting all your eggs in one basket is particularly true when it comes to investments.

With £100,000 to invest you’ll want to be sure you have a balanced and well diversified portfolio of different assets, splitting your money across a range of investments.

The aim is to smooth out your returns over time. When one particular investment or market may be performing poorly, this can be balanced by other areas of your portfolio that may be performing well.

Tax: With a large lump sum to invest you’ll want to consider tax-efficient investments to shelter your nest egg from tax. You could consider using up your £20,000 annual tax-free ISA allowance, for example, as well as other tax efficient ways to save and invest, including pension investment.

A wide range of different assets can be held within tax-free ISA wappers and self-invested personal pensions (SIPPs), including individual stocks and shares, equity and bond funds, property funds and even physical property in some cases, as well as cash.

Tax treatment depends on one’s individual circ*mstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

Compounding returns: Compounding is the process of reinvesting your interest, returns and growth back into the investment (instead of taking your gains out) along with the principal amount so that you potentially earn future growth on the full amount.

Theoretically, this has a snowball effect of leading to greater returns and growth over time. It is different to linear interest or growth, where only the principal sum invested earns the growth or interest.

Different ways to consider investing £100,000

Build a stock portfolio

If you’re after a do-it-yourself approach, £100,000 is enough to consider building a decent-sized portfolio of individual stocks. Compare online brokers to find one with competitive platform charges and a broad range of global stock options to suit your needs.

Online broker firms provide research and analytical tools to help you decide which stocks make the most sense for your level of risk appetite and your goals.

You could also consider using a robo-advisor, which will automatically invest for you based on your stated goals in exchange for a fee. Another option is to hire a professional financial planner or investment advisor for stock recommendations.

Pooled equity funds

There are thousands of pooled investment funds to choose from, including unit trusts, investment trusts and exchange traded funds.

You can choose from active or passive funds. Passive funds usually track a particular stock market, such as the FTSE 250, for example, while active funds will have a fund manager who is in charge of picking the individual stocks and other assets that make up the fund. Active funds tend to have higher charges.

When selecting funds you’ll also want to think about diversification, in terms of the industry sectors you invest in and the geographical locations of your investments. Ideally you might want a mix of different funds, some that invest in UK companies as well as others that invest in companies and assets around the world.

Bond funds

Bonds are a type of debt issued by companies and governments to investors. They pay a set interest rate on your deposit (known as the coupon), which is why they’re sometimes called fixed interest assets.

When you compare bonds, keep in mind that the safer the investment, the lower the interest rate and vice versa. If you buy bonds from the UK government, known as gilts, these are the safest type of bond investment as you’re guaranteed to get all your money back plus interest.

Corporate bonds tend to pay higher rates of interest – and the higher the rate the greater the risk. Bonds carry the risk that you might not get any interest on your investment, or even all your money back at maturity. You can check the credit ratings of bonds to see how safe they are before buying.

Bond funds and bond ETFs enable you to own a broader spread or mix of different types of bonds, which may diversify your risk.

Bonds are different to stocks and shares, and often when shares are performing badly, bonds may be doing better. This is why many financial advisors recommend investors have a mix of equity and bond funds within a balance portfolio.

Property

Depending on where you live, £100,000 (or even a proportion of it) could be enough for a decent deposit towards a property, either as a first home or a buy-to-let investment.

Keep in mind the cash deposit is just the beginning of the costs when you buy property. You would also have the ongoing mortgage payment, insurance, and maintenance costs to cover, as well as tax implications if it is not your primary residence.

If you don’t think you have enough or don’t want to commit that much upfront, you couldconsider investing in property through a fund or real estate investment trusts (REITs).

Bear in mind, while typically REITs are traded publicly on the stock market not all REITs are.

These are pooled or collective investment funds but for property. The fund combines your money with many other investors to build a portfolio of (typically commercial) properties as well as shares in property companies. You’ll receive a share of the rental income from the fund and additional investment profits.

Pensions

With a £100k windfall you may want to put a lump sum into an existing pension plan or start a private pension, subject to its terms and conditions and annual pension limits (the maximum annual contribution into a pension to gain tax relief is £60,000 for 2023/24 tax year for most people).

Pension investing is particularly tax efficient as you’ll get tax relief on your contributions at your highest level of income tax. This can significantly boost your savings pot.

But bear in mind while the tax benefits on pensions are generous at the point you invest, pensions tend to offer less flexibility, compared to ISAs for example, as you won’t usually be able to access the funds until later in life.

Plan for the long term

As you consider how to invest your £100,000, you should keep a focus on growing your wealth for the long term. In other words, don’t be tempted to try to turn your £100k into £1 million overnight.

In chasing high risk investments you run the risk of losing the considerable nest egg you’ve already built up. Instead, think about how you can steadily reach your financial goals over time.

According to the investment world’s ‘rule of 72’, if you earn 7% a year on your portfolio, you’ll double your savings in roughly 10 years.

Frequently Asked Questions

What is the best way to invest £100k?

The simple answer is that there is no, single ‘best’ way to invest a sum of money this size. This is because an individual needs to establish an investing plan of action that includes mapping out financial goals, a time line, plus the amount of risk he or she is happy to take along the way.

That will dictate how the investment is made up and in what proportion, spread across the various asset classes as described above. We’re all different, so one person’s preference may vary starkly with another’s.

Is investing £100k a significant amount?

It certainly is, which is why, except in the case of the most experienced investors, it may be worth individuals looking for professional, financial advice before making a rash decision.

Financial advice comes in many forms, from a ‘holistic’ look at trying to meet an individual’s financial goals and aspirations, to a specific requirement, such as investing a lump sum with a moderate risk profile to achieve growth over the long-term.

Paying for financial advice may seem like a waste of money when you can potentially invest your money yourself. But experts can help you map out and achieve your goals while also helping with other aspects of your finances such as planning tax efficiently. Read more here about seeking professional, financial advice. Or, for those looking for the hybrid approach, the robo-advice route may be more attractive.

Where should I invest £100k at the moment?

Remember that investing should be regarded as for the long-term and it’s important to set up clear financial goals, so that a route can be mapped out to achieve them. What may be a ‘fashionable’ investment right now, might not be appropriate in, say, five or 10 years’ time.

Investment experts often refer to the importance of ‘time in the market’, rather than ‘timing the market’, the latter being a tactic that very few investors get right consistently. Choosing sound, quality investments, if necessary with the help of third-party advice, is a sensible route to help achieve future financial goals.

Regular, eg, annual monitoring of a portfolio helps investors review how their holdings are performing and whether a portfolio requires adjustment.

How much interest can I earn on £100k on the UK?

The premise of this article is to help would-be lump sum holders ready themselves for investing a sizeable sum of money in the markets. Earning interest is something more applicable to leaving cash on deposit within, say, a bank or building society account. At the current time (May 2024), the best easy-access savings accounts and fixed-rate bonds are paying a shade over 5% according to data from Moneyfacts.

So, in basic terms, a £100,000 lump sum held in one of these products would accrue about £5,000 over the course of a year. That said, if the money is held outside of tax-efficient wrappers, remember that there would be tax to pay on this sum according to an individual’s tax status.