Where is the best place to invest £10,000?

The most popular options for investing £10,000

The two most cost effective options open to you are also the most popular. They are:

• to invest your money yourself (often called DIY investing) and I explain how to do that later in this article. You can also discover the tracker fund that survives market routs in our FREE investment guide. The Daily Telegraph even published our research.
• alternatively the increasingly popular option is to take advantage of the cost benefits associated with DIY investing but have a professional manager make the asset allocation decisions on your behalf. This is increasingly the most popular method for people like you looking to invest £10,000 or more. In fact you can now outsource the management and construction of a portfolio of low cost funds for FREE. I reveal how to in my guide ‘The best and easy way to invest £10,000‘.

If the above are not for you then you could speak to an independent financial adviser who can create a bespoke investment portfolio. Of course they will charge you a few hundred pounds for their advice. Obviously this is the more expensive option. However, if you enter your postcode into this search tool you will see a list of qualified financial advisers near you including those that that are providing FREE investment health checks at the moment. It might also be worth reading my article ‘10 tips on how to find a good financial adviser.’

DIY investing tips

If you are going to invest your money yourself  then when deciding how to invest £10,000 you need to take into account your personal and financial circumstances. For example:

• your investment timeframe
• your age
• whether you are investing to generate income or growth
• what is your attitude to risk
• your existing investments
• your tax status and available tax allowances

Below I cover the most important considerations in detail:

Types of investment

To understand the basics of investing and your own tolerance to risk within investment we recommend reading our article “Get the best returns on £50,000” which goes into more detail and will help you to identify which investment type may be best for you.

Investor or speculator?

One of the key factors which will determine where you might invest is your attitude to risk, as stated above. The more risk you are happy to take with your money the greater the potential returns, but you also increase the chances of losing some or all of your money. Investing is not for everyone and there is nothing wrong with that. Problems arise when people view investment as a means of getting rich. While of course it is possible to do so, trying to shoot the lights out will mean that you will likely end up speculating rather than investing.

The age guide to asset allocation

You don’t state how old you are or how long you plan to invest for. If you aren’t happy with a medium term investment timeframe of at least 5 years before you need to access your capital then investing may not be for you. Instead you should look to get the best interest rate on your money. I cover this in detail later in this article.

However, assuming you are happy to invest for the medium term at least, a very rough rule of thumb is to place a percentage of your portfolio in low risk investments that matches your age. The remainder can then be placed in medium and high risk assets. So a 50 year old might have 50% of assets in low risk investment funds such as bonds. The remaining 50% might go into equities. But obviously this will need reviewing as your risk profile, age and circumstances change.

How an investment is held is important

Another key point to remember is that the wrapper an underlying investment is held in will affect how it's taxed and therefore your overall return. Without trying to oversimplify investment but think of it like a car. In order to get from A to B (i.e. your current situation to your desired stage in life) you need to choose a car. The car that best suits you will depend on the journey you plan to take, your current budget etc. Every car will have different running costs, tax etc and not one car suits all. Think of this as the investment wrapper (pension, Stocks and Shares ISA etc). Once you have chosen a car you need to put fuel in it to get you to your desired destination. This is akin to the underlying investment choices (such as funds). Clearly the petrol drives performance but the car can enhance it. But obviously it’s no good buying a Ferrari if all you plan on doing is going to the shops and back each day. It’s a similar thing with investment – excessive costs can wipe out any benefit.

Holding investments in a pension or a Stocks and Shares ISA  can have clear tax advantages and therefore boost your returns.

Market timing

Remember, just because you have £10,000 burning a hole in your bank account you don't have to invest it all at once. By dripping your money into the markets over time you can reduce the impact of market timing and volatility on your returns. Let's say that instead of investing your full Stocks and Shares ISA allowance in one lump sum you invested via monthly instalments. If the market falls during the course of the year then each of your monthly instalments will buy more shares/units for the same amount of money. Or as American's would say ‘you get more bang for your buck'. This is known as ‘pound cost averaging‘.

Inflation beating savings accounts

But if you are asking your original question because you are fed up with inflation while your money in the bank earns next to nothing then you can boost returns without taking undue risk. Unfortunately National Savings and Investments (NS&I ) pulled their Index Linked Savings Certificates, which guaranteed inflation beating returns, due to demand. These are not only safer than holding money in a bank account (as they are backed by the Government) but returns are tax-free. At some point NS&I Index Linked Savings Certificates might return, so watch this space. Having said that, over 65s are now able to put their money into 65+ Guaranteed Growth Bonds (commonly called pensioner bonds) which are available from NS&I. There are two versions, a 1 year and a 3 year version, which offer 2.8% and 4% annual gross interest respectively. However the interest is taxable and you can put a maximum of £10,000 into each.

Assuming you are not eligible to take out a pensioner bond here are the best cash ISA rates and the best savings account rates available at the moment. The longer you lock your money away the higher the interest you will generally receive. But be realistic about your possible timescale because if you withdraw money early from a savings account with an agreed term then you will lose interest and at worst get back less than you put in. Don't forget interest from ordinary savings accounts is taxable. So unless you are a non-tax payer putting your cash in an ISA will mean that you can avoid paying tax on your interest. Having said that, there are a number of current accounts that pay generous interest rates which, even after tax, can mean you make more money than saving via an ISA.

So where should I invest my Stocks and Shares ISA now?

This is purely a personal decision but I favour collective investments (funds) over direct share holdings. This decision has been made after considering my own attitudes to risk with investments.

One option is to have someone else manage your money on a discretionary basis. In my guide , ‘the best way to invest £10,000 and the perfect passive portfolio‘ I highlight a company that runs a series of portfolios where they manage the underlying investment fund selection for you and for sums as small as £1. For portfolios up to £10,000 they will manage your money for FREE.

If you want to take a more hands-on approach to choosing investments you will need help to decide what to invest in (i.e. how to find the best ISA funds). To assist I've created a short series of emails that reveals the techniques and tools to use to become a successful investor in just a few minutes a month. Each concise email takes just 2 minutes to read and will tell you the simple techniques and tools the City fund managers use – which you can use too.

I hope that helps

Damien

MoneytotheMasses.com

Website: www.moneytothemasses.com

Twitter: ‘money2themasses

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