How to invest £100,000 for the best return
How do I invest £100k for growth?
I'm looking to invest £100,000 for growth. I am happy to not have access to the money for 5 to 10 years as I am still working. So I am looking at how to invest £100,000 for the best return. I am keen to run the money myself as I do not want to pay for a financial adviser. Is it possible for example to invest £100k to make £1 million safely?
(The following response is by Damien Fahy, one of the most widely quoted investment experts in the UK national press).
That really is the million pound question. Successful investing is all about managing risk in order to optimise your investment returns. So that means investing in a range of assets in order to get the best return for the level of risk you are happy to take. If you are hoping to invest £100k to make £1million in 10 years then you need to make over 25% return every year. That just isn't going to happen unless you take excessive risks in which case you are more likely to lose your money than make anything. In this article I will show you how to invest £100,000 for the best return and I will help you build an example investment portfolio based on your age and attitude to risk. In addition I will show you how I would invest £100k of my own money.
Get someone in (GSI) or Do-it-yourself (DIY)
Just because you do not wish to seek financial advice it is still possible to enjoy the cost savings associated with DIY investing yet have someone else invest the money for you. These off-the shelf-solutions have the advantage that you don't have to decide on the assets to invest in or make strategic investment decisions. They can also be monitored online and in some cases via an app. One such offering is from Moneyfarm which is one of the largest digital online wealth managers in Europe. I was impressed by them when I grilled them over their investment process. You can read my full review of their service here in which I also analyse their performance. They invest in exchange traded funds (ETFs) and because they don't charge any management fee on the first £10,000 of your money (which is lifted to £15,000 in the first year) the investment charge can be as little as 0.25%. They offer a Stocks and Shares ISA as well as a General Account. I also like that it's free to register and to have a portfolio designed for you with no obligation.
Alternative options include Hargreaves Lansdown's ready made portfolios. They offer three discretionary managed portfolios (Aggressive Growth, Balanced Growth and Cautious Growth) You can download the factsheets for each portfolio in order to see how they are invested and their historic returns, although these are not guarantees of future returns.
The best way to invest £100,000
If you'd rather invest the money yourself then investing for growth requires a different approach to investing for income. If you want see how to invest for income then read the article How to invest £100,000 for income.
When investing for growth there are a range of assets you can invest in and I list the most common ones below. If you click on the links you can jump to each section to find out more about investing in that particular type of asset.
Shares can be split further into geographical regions too, such as American equities, European equities, Japanese equities etc. It's a similar story with bonds and property. The biggest issue investors have is determining the mix of assets they should invest in. So what are the best investments to invest £100,000 in for growth? One way of determining this is to consider your age and attitude to risk. The younger you are and the longer your investment timeframe (the time before you need to cash in your investment) the more risk you can take. That's because if the value of your investments fell you still have plenty of time for them to recover. Conversely the older and more risk averse you are the more you will want to invest in low risk assets. The above list is ordered from low risk assets (cash) to high risk assets (shares). In order to help give an idea of how much you should invest in each type of asset I built the following investment calculator.
Asset allocation Investment calculator
Open the investment calculator and enter your age and email (so that you can receive the results). The calculator will present an example portfolio assuming a medium risk portfolio. On the results page you can then slide the ruler to increase or decrease the level of risk you want to take and it will automatically update the portfolio. The results are based upon analysis of the asset allocation of some of the most successful passive investment funds. Bear in mind that the calculator is for guidance only and is not advice.
How to get started investing
By this stage you have achieved more than most DIY investors ever achieve, which is having an idea of where to invest £100,000 in terms of asset allocation. If you were going down the GSI (get-someone-in) route you can even begin investing. If you want to go down the DIY investing route you now have a number of options of how to actually buy individual assets (remember you can do a mix of GSI and DIY). DIY investors can for example buy individual shares however I favour investing via funds. Funds are collective investments which pool investors' money together in order to benefit from the economies of scale. A fund can be run by a fund manager (known as an active fund) or a computer (known as a passive fund). Either way they will have an investment mandate which is essentially a commitment to how they will run the fund. For example, it may be that they will only invest in UK shares. Each fund can hold shares from hundreds of companies which means that they are not over-exposed to the fortunes of any one company. This helps them manage risk and potentially smooth returns. Funds can invest in all sorts of assets including property and bonds. That is why I and other DIY investors use them. In fact if you sought financial advice your adviser would recommend them too.
Funds come in three types, unit trusts, investment trusts and exchange traded funds (ETFs). The differences between them include the speed at which they can be traded as well as their costs. ETFs tend to be the cheapest and most easily traded investment of the three. However, unit trusts remain the main way investors invest in funds as they are more widely available.
When investing it's important to keep costs low, minimise tax, diversify your portfolio and optimise your returns. The trade off between costs and investment returns is an interesting one. Cost doesn't influence the return that you receive although high fees do ultimately eat into your returns if they are not matched by strong performance.
Investing in funds
Much is written about passive versus active investment funds. Research has shown that passive investing outperforms buying and holding most active managed funds over the long term. Most people assume passive investing means just buying a FTSE 100 tracker or ETF which isn't true. You can in fact boost passive investment returns by using some simple strategies. I have produced a downloadable guide called How to successfully invest £100,000 – keeping costs low which includes:
- Two strategies to use to boost passive investing returns
- Advanced ETF (Exchange Traded Fund) investment strategies
- The easy way to run an active ETF portfolio
- A simple actively managed ETF solution
- The perfect passive ‘buy and forget’ portfolio – including the one fund everyone should hold
Personally, I invest in both active and passive funds and don't discriminate between the two. All the research that claims passive investing outperforms active investment funds is flawed as it assumes you buy and hold the same fund forever. That's a ridiculous assumption because each strategy outperforms at different times. The key to successful investing is to choose the right strategy at the right time whether it be active or passive. You can find out how I do this in the section below titled Follow me as I invest my own £50,000.
When you are investing in funds you will need a fund platform through which to invest, assuming that you do not decide to invest via something a bit more esoteric like an investment bond. I hold my investments within Stocks and Shares ISAs as it means that you don't have to pay capital gains tax or income tax on the proceeds. The links below explain the best and cheapest investment platforms to use.
- The best stocks and shares investment ISA (& the cheapest fund platform)
- The best & cheapest SIPPs – low cost DIY pensions
Funds are categorised together by the types of asset they invest in. So those funds that invest in UK equities will be grouped into a sector such as UK All Companies. However there is a large choice of funds within each sector so it can be difficult to know which to invest in. How do you know which are the best funds for growth? Fund platforms do offer their own shortlists or ratings which you could use to guide you. However in the next section I explain how I know which funds to buy for growth and when to sell them.
Follow me as I invest my own £50,000
Hopefully you should now be confident about starting investing. You now know the sort of assets you should invest in and how to buy funds with which to do that. However, if you are deciding to run your own investments you are still left with a couple of dilemmas. How do you know which funds are best for growth? How do you know when to change your investments to ensure you make the best return on £100,000. The table below shows how my own investment of £50,000, which I run live for 80-20 Investor members, has outperformed the market, passive strategies and professionally managed funds. I would invest £100,000 in exactly the same way. In fact I would run £1million in exactly the same way. I would just invest more in each of the 10 funds that I hold.
Despite being a widely quoted investment expert in the national press I became disillusioned at how no other commentators or IFAs ran an open portfolio to show how good they are at investing. It is for this reason that I began investing £50,000 of my own money live for 80-20 Investor members. 80-20 Investor is my DIY investing service which teaches people how to run their own money and make sure they are in the best performing funds using a unique algorithm. I continually update subscribers with the funds I buy and why.
I've been running the portfolio for almost two years and achieved the return below despite a Chinese equity collapse, Brexit, a surprise Trump election victory and number of market sell-offs. The outperformance has been achieved by following the asset allocation suggested by the 80-20 Investor algorithm and having a concentrated portfolio of funds.
If you want to find out more (including the funds in my portfolio) you can enjoy a 30 day free trial of 80-20 Investor. Alternatively I have produced a short series of emails which teaches the best strategy to use to become a successful investor and how to exploit the advantages you have over professional investors. In addition, below this article you can see the latest performance chart for the 80-20 Investor algorithm.
|Damien's £50,000 portfolio||15.03|
|Passive Vanguard benchmark||11.66|
|Average multi-asset fund manager||8.71|
Best way to invest £100,000 safely with minimal risk
The safest way to invest £100,000 is to place it on deposit in a savings account. Now that doesn't have to mean a paltry interest rate. The links below will take you to our best-buy savings tables.
- Best High Interest Current Accounts
- Best easy Access savings accounts
- Best fixed Rate Bonds
- Best variable rate ISAs
- Best fixed rate ISAs
- Best notice savings accounts
Alternatively I suggest you read my guide 7 steps to get the most interest on savings over £100,000. The guide will tell you:
- What to look for in best buy tables
- The 7 key rules of saving large sums over £100,000
- The simplest way to get the best savings rate and bag an additional £915 a year!
One step up from ordinary cash accounts is peer to peer savings (p2p) which I cover below in the section titled Investing via p2p lenders.
Best way to invest £100,000 for one year
I am regularly asked this question but the answer again is cash. You shouldn't invest in anything else other than cash if you need to access your money in less than five years time.
Roundup of types of assets and their returns
I've covered this in detail above in the section Best way to invest £100,000 safely with minimal risk.
Investing via p2p lenders
Peer-to-peer lending, sometimes referred to as P2P lending, is when investors lend money to individuals or businesses through an online matching service in return for an attractive interest rate. One advantage is that you can get a higher return compared to an ordinary savings account. However investing via p2p lenders is not covered by the Financial Services Compensation Scheme (FSCS) so if something goes wrong you are relying on the company to be able to repay you. Because you are lending money it means that there is a higher default risk although this is mitigated by diversifying across a number of different borrowers. To see the sort of interest rates you can expect and compare peer-to-peer accounts use our simple comparison tool.
Investing in property
Buy-to-let has often been the go-to investment when people have large sums of money. Over the past century UK house prices have risen on average by 3% a year. However this masks some large downturns. Also the rental yield has been attractive especially as it is as much as 5% in parts of the UK. However buy-to-let property investing became less attractive when the Government announced higher stamp duty charges for landlords lower tax reliefs. Now the best way to invest £100,000 in property is to do buy a property without a mortgage. If you want to know more then you can read our buy-to-let guide. Personally I would rather invest as described above because then I can encash at any time and the investments are liquid and diversified. You can't very well encash part of a house should you need access to the cash quickly.
Investing in bonds
Bonds are essentially loans to companies or governments that can be traded. They are typically low risk investments assuming that the borrower is credit worthy. The return from bonds have been attractive since the Bank of England base rate was cut in the aftermath of the financial crisis. In recent years the average annual return has been around 3%. However in a world where inflation increases and economic growth picks up bonds' fixed income payments become unattractive.
Investing in shares
Investing £100,000 in shares is perfectly feasible but unless you have the time and expertise to analyse company accounts and reports then it is a risky strategy. The Barclays Equity Gilt study has shown that the average return from UK shares is around 5% (versus 0.8% for cash) but this masks years where there would have been significant losses. If you want to find out more about investing in shares then I suggest that you read the following guide on how to select shares. Investment funds, as described above, offer the ability to invest in shares without having to be able to choose the companies to invest yourself.
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