So you\u2019ve got a cool \u00a350k burning a hole in your proverbial pocket \u2013 perhaps from an inheritance, a lucky lottery win or even just from saving hard. You\u2019re 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\u2019s almost certainly going to be better for your future wealth than blowing it all on a flashy car, for example. But, particularly if you\u2019re new to investing, there\u2019s a lot to consider before taking the plunge. Here\u2019s a round-up of the key considerations.<\/p>
But before you jump into investing feet first, ask yourself a few questions.<\/p>
It doesn\u2019t have to be an either\/or. The best approach might be a mix of savings and investments.<\/p>
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 \u2013 at least 5 years. That\u2019s 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.<\/p>
Because of this, it\u2019s generally recommended to keep at least enough money in an easy-access cash savings account<\/a> to cover 3 months\u2019 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.<\/p> Beyond that, it depends on what you plan to use the money for \u2013 and when. If you\u2019ll need some of it for short-term goals (within the next 5 years) \u2013 a special holiday, for example \u2013 then your best bet is to find the highest-paying savings account you can that won\u2019t 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.<\/p> Once you have enough in savings to cover emergencies and short-term goals, it\u2019s 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.<\/p> 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\u2019ll 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.<\/p> 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.<\/p> There are 2 different types of bonds you can invest in: government bonds and corporate bonds.<\/p> An investment fund, such as an index fund or ETF<\/a>, is made up of tens, hundreds or sometimes even thousands of different assets. These can include stocks, commercial property, bonds and more.<\/p> By investing in a fund, you\u2019re 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.<\/p> There are 2 ways in which you can invest in property<\/a>:<\/p> Stocks and shares<\/a> (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.<\/p> 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.<\/p> From art<\/a> and fine wine to contracts for difference (CFDs)<\/a> and cryptocurrency<\/a>, alternative investments are assets that don\u2019t 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\u2019re doing and can afford to lose substantial money on their investments. We\u2019re not saying don\u2019t 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.<\/p>Consider investing the rest<\/h4>
What are my investment options?<\/h3>
Bonds<\/h4>
Funds<\/h4>
Property<\/h4>
Stocks and shares<\/h4>
Alternative investments<\/h4>