Best way to invest £10,000

£10k has just fallen into your lap and you don't know what to do with it? We give you some ideas.

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If you’re reading this, there’s a good chance you have £10,000. Lucky you! Maybe you’ve saved and squirrelled away and now are wondering what to do, maybe you got a generous bonus at work, won it on a scratch card, inherited it, got a compensation payout. It doesn’t matter how you got it, this guide’s about what to do now you have it.

There are a few obvious homes for £10,000: a new car or a luxury holiday. However it should give you pause for thought, £10,000 is money that can, to a small extent, change your life.

Specifically, it can buy you protection in the event that you get ill, are made redundant or simply decide you hate your job and need a change; it can get you started on long-term investment; or it can be used to create an income that can give you a little extra each month or pay for much-needed repairs. Of course, you could blow it on a holiday, but it may be worth considering whether you could learn a few useful skills while you’re there.

Here are some smart ways you might consider spending £10,000.

Buy yourself peace of mind

Most financial advisers say that people need at least three, and preferably six, months’ worth of expenses in cash to see them through in the event of a rainy day. This gives them the flexibility to find a new job, retrain or just have a little breathing space if their career is disrupted. The pandemic has shown how important it is to have a plan B.

Unfortunately, as this needs to be in cash, there isn’t very much you can do with it. The rates on savings accounts are, universally, unexciting and you will struggle to find anything higher than 2%. Your aim, as far as possible, is to find an account that helps you stay ahead of inflation (currently running at 0.5%). This stops the real value of your capital falling over time.

Think robo

Rather than heading to some fusty stockbroker offices in Mayfair, investors can now get a similar-ish service via an app. The fusty stockbroker may beg to differ, but in practice, the fees are lower and in many cases, the financial outcome won’t be very different.

There are a lot springing up, so it can be worth sticking with those that have been around a while like Nutmeg, Moneyfarm or Wealthsimple. The beauty of these offerings is their simplicity. Usually, you just answer a series of questions about your age and plans for the future and it will give you an appropriate portfolio. In that respect, it is a good option for someone who doesn’t want to think too hard but wants their money to work a little harder than it would in a bank account.

Split it up

It can be tempting to think that all the money needs to be invested in one idea. However, it is a good strategy to split it up into three or four pots. One pot can be used to back your higher risk ideas – that artificial intelligence ETF, frontier market fund or micro-cap companies. Another can be used for more gentle options – a well-diversified global fund, for example, while the remainder can be in a safer option – perhaps cash or near-cash.

This is a sensible strategy for another reason. If you put all your money into one market in one go, you risk investing at the peak of the market only to watch it gently slide. All markets go through cycles. There are also strong behavioural reasons why this might happen. When investing, human beings tend to be reassured by following the crowd. If everyone else is investing in a particular area, it can seem like a good idea. Unfortunately, this will often be the peak of the market. Spreading your money into different pots avoids this problem.

Take a grown-up gap year (or month)

With a comfortable retirement looking more elusive for many, the “grown up gap year” has emerged as a way to travel, volunteer or retrain at a time when people are still young enough to enjoy it. A whole industry has emerged catering to this nascent market, offering options for sabbaticals or “golden gap years”, learning languages in remote corners of the globe.

While it can take a notable bite out of your finances, it can also be an opportunity to gather new skills, meet new people and see new countries. It is also the type of CV garnish that can impress employers, showing initiative and drive. However, the best ones tend to cost money. Go with a reputable organisation and you may come back energised, with a host of new accomplishments that can help your career.

Invest to create an income

£10,000 is not going to generate a life-changing amount of income. That said, the income available from a broad-based UK stock market investment would currently be a little over 4%. That’s significantly ahead of a savings account, giving you a tax-free £400 a year if you hold it in an ISA (which it is certainly worth doing). That’s half way to a decent holiday. You may get some uplift in the capital value as well if stock markets go your way, though you will be taking a risk that the capital value could fluctuate.

Not all investments pay an income, so you need to pick carefully. Index-tracking funds and ETFs, for example, may give you an income, but it will vary depending on the index they track. For example, the FTSE All Share and FTSE 100 tend to pay a relatively high income, while the US market tends to pay a lower income. In general, more established industries – think pharmaceuticals, industrials or mining – pay higher dividends to their shareholders, while areas such as technology pay lower dividends.

You can also choose an “equity income” fund. These are funds managed by a fund manager (rather than tracking an index) who will aim to pick companies that offer the best combination of income and capital growth potential. In each case, the fund factsheet should give you an idea about the historic yield of the fund.

£10,000 may not change your life in a big way, but it can help you take some tentative steps to build yourself a better financial future. Consider your options wisely.

Compare trading platforms

Table: sorted by promoted deals first
Data indicated here is updated regularly
Name Product Price per trade Frequent trader rate Platform fees Brand description
Fineco
£2.95
£2.95
Zero platform fee
Your first 50 trades are free with Fineco, until 31/12/2020. T&Cs apply.
Fineco Bank is good for share traders and investors looking for a complete platform and wide offer. Capital at risk.
IG
0% commission on US shares, and £3 on UK shares
From £5
£0 - £24 per quarter
IG is good for experienced traders, and offers learning resources for beginners, all with wide access to shares, ETFs and funds. Capital at risk.
eToro Free Stocks
0% commission, no markup, no ticket fee, no management fee
N/A
Withdrawal fee & GDP to USD deposit conversion
Capital at risk. 0% commission but other fees may apply.
Hargreaves Lansdown Fund and Share Account
£11.95
£5.95
No fees
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. Capital at risk.
Interactive Investor
From £7.99 on the Investor Service Plan
From £7.99 on the Investor Service Plan
No transfer fees or exit fees. £9.99 a month on the Investor Service Plan
Open an ISA, Trading Account or SIPP you will get £100 of free trades to buy or sell any investment (new customers only).
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
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Compare up to 4 providers

Data indicated here is updated regularly
Name Product Minimum deposit Maximum annual fee Price per trade Brand description
Moneyfarm stocks and shares ISA
£1500
0.75%
£0
Hargreaves Lansdown stocks and shares ISA
£100
0.45%
£11.95
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
Interactive Investor stocks and shares ISA
Any lump sum or £25 a month
£119.88
£7.99
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
Saxo Markets stocks and shares ISA
No minimum deposit requirement
0.12%
£8.00
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.
AJ Bell stocks and shares ISA
£500
0.25%
£9.95
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
Fidelity stocks and shares ISA
£1000 or a regular savings plan from £50
0.35%
£10.00
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
Nutmeg stocks and shares ISA
£100
0.75%
£0
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
Legal & General stocks and shares ISA
Legal & General stocks and shares ISA
£100 or £20 a month
0.61%
N/A
Legal & General is a big financial services company which offers insurance, lifetime mortgage, pensions and stocks and shares ISAs. Capital at risk.
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Compare up to 4 providers

Data indicated here is updated regularly
Name Product Minimum investment Choose from Annual fee Brand description
Moneyfarm Pension
£1,500 (initial investment)
7 funds
0.35%-0.75%
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
AJ Bell Pension
£1,000
Over 2,000 funds
0.05-0.25%
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
PensionBee Pension
No minimum
7 funds
0.5% - 0.95%
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100 or £25 a month
2,500 funds
0-0.45%
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Interactive Investor Pension
Any lump sum or £25 a month
Over 3,000 funds
£10/month
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
£10
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
Moneybox Pension
£1
3 funds
0.15% - 0.45% charged monthly
Manage your money with an easy-to-use Moneybox app. Capital at risk.
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Compare up to 4 providers

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.

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