Best way to invest £50,000

So you’ve got a cool £50k burning a hole in your proverbial pocket – perhaps from an inheritance, a lucky lottery win or even just from saving hard. You’re wisely considering squirrelling it away for the future. Investing it could be a good shout, offering the potential for higher rewards than cash savings. And it’s almost certainly going to be better for your future wealth than blowing it all on a flashy car, for example. But, particularly if you’re new to investing, there’s a lot to consider before taking the plunge. Here’s a round-up of the key considerations.

What to consider before investing £50k

But before you jump into investing feet first, ask yourself a few questions.

• Do you have any expensive debt? If you’ve got a high-cost loan or a lot of high-interest credit card borrowing, for example, chances are you’ll struggle to make more from investing than you’re paying in interest on the debt. In this case, you’re probably better off using a chunk of your £50k to pay off that debt first.
• Do you have enough rainy-day cash savings? Consider how you’d cope financially if you lost your job or incurred a large and unexpected expense. Make sure you have enough in an easy-access cash savings account to cover you for a few months if disaster strikes before considering investing.
• What are your goals? For short-term goals, within the next 5 years, investing may not be the best option. That’s because investing works best when you invest for the long term – at least 5 years. Investing is risky, and if you only invest for a short period, you risk a market downturn wiping out any profits or even resulting in a loss. Meanwhile, if you’re thinking very long term – and specifically of saving for retirement – you’re probably best off putting extra money into a pension scheme. This will let you take advantage of the tax breaks available on pension contributions.
• How risk-averse are you? If the thought of losing money, even temporarily, is enough for you to break out in cold sweats, then you probably want to take a very cautious approach to investing. While you won’t be able to reduce your risk level to nil – that’s simply not possible when investing – some investments are riskier than others.
• How confident are you about making investment decisions? If the answer is “not very”, you might want to consider paying for professional financial advice. It’ll cost you more in fees than DIY investing, where you make your own investment choices and manage your investments without support. But it’ll save you time and hassle and could be worth it in the long run, not least because your adviser – rather than you – will be on the hook if they give you poor advice. Or, if a human adviser’s fees are too steep for you to stomach, you could always consider the halfway house of a robo-advisor.

Should I put my £50k in investments or cash savings?

It doesn’t have to be an either/or. The best approach might be a mix of savings and investments.

Put a minimum amount in savings

The key thing to bear in mind is that, with investing, you should be prepared to leave your money in place for the long term – at least 5 years. That’s because the longer you invest for, the greater the chance your money has of riding out any market volatility and giving you decent returns. If you need to take it out sooner, you risk hitting a market downturn before your money has had a chance to grow enough. This increases the chance of you losing money.

Because of this, it’s generally recommended to keep at least enough money in an easy-access cash savings account to cover 3 months’ worth of essential outgoings in case you lose your job or have an unexpected drain on your finances, for example. Think enough to cover 3 months of mortgage or rent payments, household bills, food and grocery shopping, transport and the like.

Beyond that, it depends on what you plan to use the money for – and when. If you’ll need some of it for short-term goals (within the next 5 years) – a special holiday, for example – then your best bet is to find the highest-paying savings account you can that won’t lock up your money for too long. If your time frame is a year, look for the best 1-year fixed rate savings account, for example.

Consider investing the rest

Once you have enough in savings to cover emergencies and short-term goals, it’s time to think about investing the rest. Over the long term, investing usually yields higher returns than savings. The interest rate on cash savings is rarely enough to compensate for the effect of inflation. This means that savings often lose value in real terms over time.

Investments offer the chance of higher returns with the potential to beat inflation. This also comes with the risk of losses, though. So, if you can only afford to keep your money locked up for the medium term (5-10 years, say), you’ll need to weigh the potential reward against the risks. In the very long term (10 years plus), investing 50k will almost always leave you better off than putting the same amount in savings.

What are my investment options?

Deciding to invest is only the first step in the journey. Next, you need to decide what to invest in. Broadly speaking, these are the main options to consider when investing for the long term, ranked (roughly) by how risky they are.

Bonds

There are 2 different types of bonds you can invest in: government bonds and corporate bonds.

• Government bonds. Also called gilts in the UK, these are essentially IOUs from the government. In exchange for investors loaning the government money, it will pay a set amount of interest over a fixed period. Governments rarely default on their bond payments, so gilts are considered relatively safe. However, the potential returns are not as high as with riskier investments.
• Corporate bonds. These are loans to companies rather than the government but otherwise work in the same way. They’re seen as more risky than government bonds because companies are more likely to go bust and be unable to repay their debt, or at least the interest. This risk may be higher with bonds issued by smaller, less established companies. These may pay a higher rate of interest to compensate for this.

Funds

An investment fund, such as an index fund or ETF, is made up of tens, hundreds or sometimes even thousands of different assets. These can include stocks, commercial property, bonds and more.

By investing in a fund, you’re effectively buying a small amount of all the different assets it includes. This means that your investment already has a reasonable level of diversification to help you spread your risk compared with investing in just a few individual assets, for example. As a result, investing in a fund is typically regarded as lower risk than the options below.

Property

There are 2 ways in which you can invest in property:

• Indirectly, through certain investment funds that include property as one of the assets in the fund.
• By purchasing property directly, to benefit from rental income and/or a capital gain if the property’s value rises. Property is tricky to place precisely on the investment risk scale. It tends to rise in value over time, but this isn’t guaranteed, and you could lose money if you sell during a downturn. Plus, there will be associated costs with owning property.

Stocks and shares

Stocks and shares (also known as equities) are usually regarded as the riskiest of the mainstream investment types. Individual company performance can be volatile, especially (though not exclusively) if you buy shares in smaller, less-established companies. As a result, investing all of your money in a handful of individual stocks carries a higher risk of loss than, for example, investing in a fund that includes hundreds of stocks.

However, with higher risk comes the chance of higher rewards if a company does spectacularly well. You may consider this worth the risk. Plus, many shares pay dividends, which you could either use to boost your income or reinvest to grow your portfolio.

Alternative investments

From art and fine wine to contracts for difference (CFDs) and cryptocurrency, alternative investments are assets that don’t quite fit the traditional investment mould. Often complex, often lightly regulated (if at all) and almost always very high-risk, alternative investments are typically best-suited to experienced investors who know what they’re doing and can afford to lose substantial money on their investments. We’re not saying don’t splash out a bottle of vintage wine if you want to for a special occasion. But tread with more caution if you are hoping to turn a profit on it down the line.

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How can I spread my investment risk when investing £50k?

No matter how much you’re investing, diversification is key. Diversifying your portfolio is basically a fancy way of saying managing your risk by investing in many different types of assets rather than putting all your eggs in one basket.

You can diversify your portfolio by:

• Type of investment. For example, by buying a mix of government bonds, corporate bonds, funds and equities (stocks and shares).
• Sector. Sinking all your money into tech firms, for example, would risk losses if the entire technology sector suffers a downturn.
• Geography. Many investment platforms let you buy international funds and stocks, particularly from the US.

Some investment platforms offer ready-made investment portfolios that match your risk preferences. Alternatively, you can look at the breakdown of a ready-made portfolio (offered by many investment platforms) and invest in assets that match its basic structure.

If this all sounds a bit overwhelming, consider asking a professional financial adviser to make recommendations. This will come at a price, but £50k is a lot of money. A financial adviser could not only save you time but could also help you avoid making poor decisions.

Do I have to pay tax on my £50k investments?

That depends on how you invest the money, what you invest in and how much you make off your investments.

If you invest through a general investment account, then you will potentially be liable for a few types of investment tax, including:

• Income tax. This is payable on interest from government and corporate bonds that exceed your annual personal savings allowance. As of the 2023-24 tax year, the annual allowance is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. The allowance applies to all interest earned from savings and investments.
• Capital gains tax. This may be payable on the profit you make when you sell investments. Again, you’ll only pay it if it exceeds your annual allowance (£6,000 for the 2023-24 tax year, reducing to £3,000 for 2024-25).
• Dividend tax. This only applies if you receive dividends from shares or funds you own. You can earn up to £1,000 a year (as of 2023-24) without paying it.

How to avoid paying investment tax

One way to avoid paying investment tax is simply to stay within your annual tax-free allowances, but this may not always be realistic. Another option is to maximise your use of tax-efficient wrappers, such as ISAs and SIPPs.

• Stocks and shares ISAs let you invest up to £20,000 per year without paying any tax on gains or income. Bear in mind the £20,000 applies across all ISAs you hold. If you also pay into a cash ISA or a lifetime ISA, for example, you’ll be restricted as to how much you can invest in a stocks and shares ISA.
• SIPPs are a type of personal pension. All pension contributions up to £60,000 per year (as of 2024/2025) benefit from tax relief, so a SIPP could be a good option if you’re investing for retirement. Bear in mind that you can’t get your money out before you turn 55, though.

Bottom line

Providing you’ve got enough in cash savings for an emergency and have paid off expensive debt, investing can be a great way to build money to achieve your goals. While all investments carry risk, some are riskier than others, so there should be options to suit your risk appetite. Whether you’re investing £5k, £50k or £500k, the key thing is to do your research, choose your investments carefully and build a diverse investment portfolio. Depending on your investment experience, knowledge and confidence levels, you can manage the whole process yourself via a DIY investment platform, use a robo adviser or consider paying for professional financial advice.

Frequently asked questions

• What's the best type of investment for a beginner?

  One of the most straightforward ways to start investing is by putting your money into funds, such as index funds or ETFs. Because funds are essentially collections of many different assets, investing in a fund automatically diversifies your portfolio and spreads your risk compared with investing in individual assets separately. They’re also less effort and, typically, less expensive than investing directly in shares, for example.
  

• Should I pay off debt before investing?

  Maybe. It depends on how much your debt is costing you. If you have a lot of expensive debt, such as credit card borrowing, high-interest loans or an unauthorised overdraft, chances are that this will cost you more than you could earn by investing. So it’s probably best to pay off these types of debt first. If, on the other hand, your debt is low interest and under control – a mortgage that you’re up to date with payments on or a 0% credit card balance transfer deal that you already have enough in savings to pay off when the 0% term ends – then you probably don’t need to prioritise paying these off over investing.

• Should I get financial advice before investing 50k?

  If you’re new to investing – or even if you’re not but are investing a bigger amount than you have done before – it’s definitely worth considering. After all, £50k’s a lot of money to risk on a DIY approach unless you’re very confident. A professional financial adviser can make recommendations tailored to your specific circumstances, goals and risk appetite and reduce stress and hassle for you. They will, of course, charge a fee for this service. But their recommendations could well mean you end up with investments that ultimately deliver higher returns than if you’d chosen your own.