How do I invest £100k for growth?
Damien's response:
(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 achieve a return of over 25% every year. That kind of investment growth 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.
The best way to invest £100,000
In order to get the best average investment return when you invest £100,000 you should:
- Decide whether you want to manage the money yourself or get someone else to manage it for you
- Determine the level of investment risk (and therefore potential loss) you are willing to experience
- Diversify your investment portfolio (so your eggs are not all in one basket)
- Minimise costs and tax
- Monitor and review your portfolio regularly
I will explain how to do each in turn below.
1. Decide whether to 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 a mobile app.
One such offering is from Wealthify one of the best and cheapest digital online wealth managers (robo-advisers) in the UK. You can read my full review of Wealthify here in which I also analyse its performance, which was particularly impressive in 2020. It invests in low-cost funds and charges an annual management fee of just 0.6%. It offers a Stocks and Shares ISA, a Junior ISA, a pension and a General Investing Account. It is free to register and you can start investing from just £1.
2. Determine your investment risk
Most investors don't have a realistic grasp of their own attitude to risk. With any investment there is always the risk of losing money. The more investment risk you take the greater the chance of making a profit, but there is also a greater chance of making a loss. Investors need to determine what their attitude to risk is (how much they are comfortable risking to increase their chances of making money) as it will dictate the types of assets they invest in.
There are a few useful tools available to help you work this out, some are free and some will cost you. Finametrica is a popular risk profiling tool favoured by professional financial advisers for use with their clients. You can purchase a one-off risk profile assessment for £30. An alternative free option is to sign up with a robo-advice service like Wealthify or Nutmeg and answer their risk assessment questionnaire to see your attitude to risk profile (i.e. low, medium or high).
3. Build a diversified investment portfolio
If, in step 1, you decide to get someone to invest your money for you then you will now have a ready-made diversified portfolio to invest in. But assuming that you'd rather invest the money yourself then you will need to build a portfolio yourself. (Investing for growth requires a different approach to investing for income. If you want to see how to invest for income then read the article How to invest £100,000 for income).
When investing for growth there is 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. You can read more about the different types of asset class in our article 'What is an asset class and what are the different types?'.
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 latter of which you determined in step 2 if you didn't know it already). 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 fall 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 we 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.
Invest using funds
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've decided to go down the GSI (get-someone-in) route you can even begin investing now. If you want to continue 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 seek 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.
Passive vs Active investing
Much is written about passive versus active investment funds. Research has shown that passive investing outperforms buying and holding most actively 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 (by regularly reviewing your portfolio). You can find out how I do this in the section below titled Follow me as I invest my own £50,000.
We explain more about passive investing in our article 'What is passive investing?'.
4. Minimise costs and tax
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 directly influence investment returns but high fees do ultimately eat into your returns if they are not matched by strong performance.
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 (on a fund platform) as it means that I 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 ISA (& the cheapest fund platform)
- The best & cheapest SIPPs – low cost DIY pensions
When choosing the underlying funds to invest in they 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.
5. Monitor and review your portfolio
Once you have a starting point for your portfolio you have a decision to make as to whether to stick to your original asset mix and fund choices or allow nature to takes its course. As the portfolio's asset mix deviates over time from your original asset allocation, so too does its risk profile. If you use an online wealth manager (as mentioned earlier) they will likely rebalance your portfolio (i.e. buy and sell holdings to ensure you maintain your original asset mix). They will also review the suitability of your investment allocation periodically. However, assuming you run your portfolio yourself you will need to monitor and review your portfolio on an ongoing basis. Research has shown that regularly reviewing your portfolio can not only reduce a portfolio's downside risks but also boost returns.
In the next section, I explain how I know which funds to buy for growth, how I review them and how I decide which to sell.
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, and most 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 sell and provide my reasons.
I've been running the portfolio for over eight years and achieved the return below despite a Chinese equity collapse, Brexit, a surprise Trump election victory, the US-China trade war, the Covid pandemic and the war in Ukraine. The outperformance has been achieved by following the asset allocation suggested by the 80-20 Investor algorithm and having a concentrated portfolio of funds. At times this means that I have only had 27% of my assets invested in equities, yet my portfolio has still outperformed professional fund managers who have taken almost twice as much risk, but for no extra reward.
| Name |
Profit from March 2015 to June 2024
|
| My 80-20 Investor £50,000 portfolio | 70.68% |
| Average professionally managed multi-asset fund (Mixed Investment 40%-85% Shares Index) | 58.82% |
| AFI Balanced (benchmark of portfolios picked by financial advisers) | 54.11% |
| Passive Vanguard benchmark (portfolio of Lifestrategy funds to reflect my portfolio's changing equity content) | 52.97% |
To put the above return into context, if I had invested £100,000 back in March 2015 it would now be worth £170,680.
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.
Invest with confidence
Our 80-20 Investor service provides:
- Guidance on investing your own money
- Complete transparency
- Helpful community of DIY investors
- Regular newsletters & research
- Access to Damien’s live portfolio
Best way to invest £100,000 safely with minimal risk
If you've read this far and have decided that investing isn't for you then 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
If you would prefer a simple online solution then Hargreaves Lansdown has a service called 'Active Savings'. It offers access to top savings rates via one online account meaning that you don't have to shop around trying to continually find the best savings rates. Click on the link to read our full, unbiased review of the Hargreaves Lansdown Active Savings* service. Additionally, Raisin provide a similar service - read our unbiased Raisin review to find out more.
If savings account rates still seem unattractive then 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.
Get 5.18% (AER Variable) with the Plum Cash ISA
Earn 5.18% (AER Variable) with the Plum Cash ISA
- Easy Access Cash ISA
- Rate includes a Plum Bonus of 1.39% AER (variable)
- T&Cs and eligibility criteria apply
- Plum account required
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
Cash
I've covered this in detail in the two sections above.
Investing via p2p lenders
Peer-to-peer savings accounts, sometimes referred to as P2P or peer-to-peer 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. Bear in mind that peer to peer savings accounts are 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. It would be wise to approach peer-to-peer lending should be with caution and indeed should probably be avoided by most, especially during an economic downturn as this is likely to result in more people defaulting on their loans meaning you could lose your money. Two of the biggest peer-to-peer lenders - Ratesetter and Zopa - have previously withdrawn from the market and only a handful of niche companies remain.
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 6% 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 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 creditworthy. 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 2-3%. However, in a world where inflation increases and economic growth picks up, fixed income payments on bonds 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.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Wealthify, Hargreaves Lansdown