Best way to invest £50,000
Want to get the best return on £50k? Here are some of your options.
So you’ve just won Love Island – or perhaps you’ve got the max payout on a scratch card or got lucky on some ancient Premium Bonds. Maybe that wealthy elderly aunt has just died with no other living relatives.
Whatever the case, you’ve got £50,000 in your bank account and you’re wondering how to spend it.
As ever, any investment strategy must come with the caveat that there are no free lunches. If you are looking for high rewards, you must accept that you need to take some risk to achieve them. If you’re the “Stick it under the bed” type, high-risk strategies probably aren’t for you.
Here are some ideas for effective options if you have a £50,000 lump sum.
Consider hiring a financial adviser
£50,000 invested over 20 years, growing steadily at 5% per year could give you a pot of £135,000.
That’s a meaningful contribution towards a comfortable retirement. However, financial markets can be fickle and with £50,000 to invest, it may be worth enlisting the help of a professional to ensure it grows as you would like.
Expect to pay around 1%-1.5% of the value of your assets to a financial adviser. In many ways, you should use the same criteria to pick a financial adviser as you would any expert: Do you trust them? Do you like them? Can you work effectively with them?
The best way to find a financial adviser is usually word of mouth – if someone you trust has an adviser they trust, then that’s a great place to start. However, if that isn’t possible then try checking online. The right financial adviser should be completely happy to let you check their credentials.
Or get good at DIY
No, not fixing shelves, but using one of the do-it-yourself broker platforms to build an investment portfolio can be a cheaper option than using a professional as long as you’re reasonably confident.
Platforms such as Hargreaves Lansdown, Fidelity, or AJ Bell all have user-friendly tools to help you build a portfolio based on your needs – whether that is income, capital growth, capital preservation or any other shade of grey.
You have to be disciplined. One of the great advantages of these platforms is that they allow you to go in and look at or update your portfolio at any time. However, this brings with it a certain temptation to meddle with your investments. Over-trading can bring significant costs and seldom adds value.
Get a chunky tax refund
The generous tax breaks provided by the government to invest may not survive any government spending review, so it is worth taking advantage while you can.
The first port of call should be a pension. You can put in up to 100% of your earnings or £40,000 per year, whichever is lower.
You’ll get 20%, 40% or 45% tax relief, depending on your top rate of income tax.
You should note that your allowable contributions fall significantly when your salary hits £150,000.
If you have a salary of £80,000 and you put £40,000 of your £50,000 pot in a pension, the government will top it up by £16,000. It’s as close to “free money” as you can get.
Invest in startups
For those who are willing to take some risk and like the idea of backing early-stage businesses, it may be worth looking at Enterprise Investment Schemes or Venture Capital Schemes. Strictly for the brave, these schemes offer generous tax breaks for investing in exciting, early-stage companies.
Venture capital trusts are run by experienced managers who pool resources to invest in a series of small companies. Investors must invest in newly-issued shares (rather than shares trading on the secondary market) to qualify for the full tax breaks. These include 30% tax relief on investments up to £200,000, plus tax-free dividends and growth. You can get the latest offers through the major investment platforms.
Enterprise Investment Schemes are higher risk still, but offer even higher tax breaks: tax relief of 30% on your income tax bill on investments of up to £1 million or £2 million for investment into “knowledge-intensive” companies. You can defer capital gains, pass on the investment free of inheritance tax, and enjoy tax-free growth and income. It’s not a solution for all of your capital, but it is an option for a chunk of it.
Buy-to-let property has fallen out of favour in recent years as the rules around mortgages have tightened up and some of the tax breaks have evaporated. However, done well, it can still be a useful way to invest for an income, while also retaining an asset that should appreciate over time.
There are some basic traps to avoid: expensive décor is a common one. However nice they are, don’t expect tenants to look after it as they would their own home. Don’t forget to factor in additional costs such as estate agent fees, repairs and maintenance, plus the hassle factor of keeping the place up to scratch.
Buy-to-let mortgage rates are marginally higher than residential mortgages but are still low by historic standards, starting at around 2%. The amount you can borrow is determined by your rental income, but you will also need to earn at least £25,000 and have a deposit of 25% of the property value. Lenders typically need a rental income of 25–30% higher than your mortgage payment, but beware – this may not be the given mortgage rate, but the so-called “pay rate”, usually around 5%.
To find out more, we’ve got a whole guide on investing in property with your name on it.
Sort out the children (or grandchildren)
£50,000 will bankroll a child’s university education for three years. Consider opening JISAs for your children or grandchildren.
You can tuck away £9,000 per year in a Junior ISA. The downside is that they become entitled to the money at 18, so you’ll have to trust them to do the right thing. Or just don’t tell them about it.
Of course, there are other options for £50,000. For many, it will be the deposit on their first home or a means to add value to their home. As home-working becomes more commonplace, creating a cosy home environment can seem like the best possible investment.
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