To determine the best asset to invest in, you’ll first need to think about how much return it could generate, as well as the amount of risk you’re comfortable with. We’ve explored some different types of assets worth considering below:
1. Property
Property is seen as one of the safest forms of investment in the UK, especially in the buy-to-let market. But while the returns that landlords and developers get from property is usually not related to investment markets, it doesn’t mean they are entirely risk-free. This is because the housing market is still subject to price corrections and crashes, with some financial experts warning that house prices could slump following the recent sharp rise in mortgage interest rates.
As well as this, you’ll need to offset your earnings against any capital gains tax and income tax due as a result of your investments in property. With the buy-to-let tax relief decrease, investing in property may only provide optimum returns when you have next to no mortgage.
2. Cash
Cash is often the first thing that comes to people’s minds when they think about investing. To make your money work hard for you in a savings account, you’ll probably need to be able to lock it away for a set period of time so you can access the best interest rates. Fixed rate bonds usually offer the most competitive rates of all account types, with the longest terms typically paying the highest interest rates.
The good news is that this is a lower risk investment option, since £85,000 of your savings per person, per banking group is protected by the FSCS (Financial Services Compensation Scheme). Because of this protection, it would be advisable to split your £100k, for example, by saving £50k with one banking group and £50k with another, so that all your money is covered by the FSCS limit.
3. Stocks
Stocks represent shares of ownership in a company. Companies usually sell shares of stocks to raise money when they want to generate capital to grow their business.
If you’re looking for places to invest £100k, buying stocks may enable you to increase your wealth and beat inflation, depending on how well the company you buy stocks in performs. However, if the company underperforms, you stand to lose some or all of your investment.
Read our investment guides for more information on how to get started.
4. Peer-to-peer lending (P2P)
Also known as P2P, peer-to-peer lending is an alternative way to invest or diversify your existing investment portfolio. This type of investment allows someone to accept a loan directly from someone else, rather than taking out a loan with a bank or building society.
When you lend an individual, or ‘peer’, money, you’ll earn interest and get your money back when they repay the loan. Lenders, like you as an individual investor, and borrowers, mainly small companies or other individuals, collaborate via online peer-to-peer companies, which keep overheads down.
The risk of you losing your money is mitigated by the P2P company splitting your money into smaller amounts, rather than loaning it all to one or two borrowers.
You can typically get a competitive rate of interest when you invest in peer-to-peer lending because the overheads are significantly smaller. There are no physical branches and fewer staff, for example.
The downside is that P2P lending is not currently covered by the FSCS, meaning there is more risk of losing your money should the borrower fail. However, thanks to the personal savings allowance, the first £1,000 of interest earned from P2P lending is tax-free for basic rate taxpayers. Meanwhile, higher rate taxpayers can earn up to £500 in tax-free income from a P2P platform. Certain P2P savings can also be held in some ISAs.
5. Equity
Equity is the amount of money that could be returned to a company’s shareholders once all assets are liquidated and debt is paid off.
Investing in equity can deliver a worthwhile stream of income, but it can also go terribly wrong if you don’t do your research or you make a risky move. It also carries more risk than some people are comfortable with.
If you’re looking for equity that pays regular income, a mixed basket of shares in different companies could be your best option as they often pay out dividends to shareholders. However, the stock market is unpredictable and subject to fluctuations, including financial crashes.
6. Bonds
Bonds represent a company or government debt. When a company or government issues a bond, they are issuing debt and agreeing to pay interest on the money you’re “lending” them. Bonds typically pay out annual interest, repaying their debt at the same time. Because of this, bonds are often considered one of the safer types of investment, especially if you want to invest over a short term.
The different types of bonds are best described as a spectrum from most to least risky, starting at ‘gilts’, or government bonds, at the safer end, through to high-yield bonds from companies with low credit ratings at the much riskier end.
7. Annuities
If you’re looking to be set for a certain period of time without access to your £100k, you could choose to invest in an annuity. An annuity will provide you with a guaranteed income stream but it will mean you give up your right to access your cash.
