In a world rich with savings and investment products, it can be hard to know what to do with your money. At one end of the spectrum traditional bank accounts offer a low risk home for your money, but with interest rates at an all-time low, there’s little reward for keeping funds with your bank. At the other end of the spectrum there are high yielding investment opportunities, and while each comes with its own unique risks, typically the greater the reward, the greater the risk . So, how do you know what is the best option for your money?
If you have a few thousand pounds saved up that you’re willing to stash away for a while, you could consider investing that money to help grow your pot. However, for first-time investors, the thought of not having this money instantly accessible in a traditional bank account can seem daunting.
Below we take a look at how you could make the most of £10,000.
Understanding investment risk
Is an investment worth the risk? When investing there will always be a delicate balancing act between risk and reward that is down to you, as the investor, to decide upon. Whilst one individual may enjoy high-stake opportunities with a greater chance of financial loss but higher returns, others prefer a lower return rate with greater safety. Investing is a personal endeavour and it can be hard to decide where you fit on a sliding scale of risk appetite.
Low risk investors tend to be most comfortable when investing in opportunities that counteract inflation whilst returning a profit. In contrast, high risk investors typically are aware their investments could fluctuate dramatically and are prepared to risk their money for large financial returns. Somewhere in between is a medium risk investor; happy to accept ups and downs in their investment lifetime and like opportunities that return over and above inflation.
Some investors choose to start with a low level of risk and build the risk up as they develop their portfolios and expertise over time. Finding a comfortable starting point and building an investment strategy from there can be beneficial to some.
However, if you’re ever unsure you should seek independent financial advice before investing.
Best return on investment considerations
- Determine how long you are happy to have your money invested – Five years is an average for most investors.
- Minimise costs by searching for opportunities with little to no account costs or fees.
- Consider investing into more than one opportunity to diversify your investments which can help level out fluctuations.
How to start investing £10,000
You could put your money into a savings account
Whilst it can be said that savings accounts offer smaller returns, there are benefits to them. By putting your money into a savings account your money isn’t subject to the ups and downs associated with the market. Furthermore, because your money is protected by the FCSC when with a bank, if they were to go bust your £10,0000 would be protected.
You could open a Cash ISA
If you want to earn tax-free interest a Cash ISA could be an option to consider.* Cash ISAs typically offer better interest rates than your traditional savings account – 1.21% is the average at time of publication. Therefore, with £10,000 you’d be £121 better off after one year. Whilst returns aren’t astronomical, Cash ISAs can allow you to earn passive income easily without the worry of market fluctuations, particularly if you opt for a fixed-rate Cash ISA.
You could open an Stock & Shares ISA
Some call them Stocks & Shares ISAs, others Investment ISAs. Regardless, those who put their capital into this type of ISA can potentially receive higher returns compared to other opportunities. You can invest in the likes of shares, bonds, and funds whilst the ISA acts as a tax-free wrapper. Interest rates vary and this type of ISA can carry greater risk due to the impact of market fluctuations.
You could open a Lifetime ISA
The Lifetime ISA is available to those aged 18-39 (inclusive). You can save up to £4,000 per year towards your first home, retirement (or both). This means, if you wanted to save £10,000 into a Lifetime ISA you would have to do this over three tax years. Alternatively, you could place £4K into a LISA and the remaining £6,000 elsewhere.
Each year you will receive a 25% bonus on what you have saved. Therefore, if you saved the maximum of £4,000 you would receive an extra £1000.
*Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.