How the pros would invest a £1 million windfall

There’s never a bad time to receive a chunky windfall, but the current environment does throw in some curveballs. A potential artificial intelligence (AI) bubble and giddy markets make for a precarious investment climate, while higher inflation also brings risks. We asked the pros how they would allocate £1 million today.   

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Any investor receiving a windfall will need to take into account a range of variables: how much other money you have, whether you have debts, your attitude to investment risk and your ultimate plans for the capital. You will also need to shelter as much as possible in tax-efficient products like ISA or pensions, such as a SIPP.   

Once you’ve done that, you can turn your attention to the investment strategy. There are a few factors anyone with a windfall will need to consider. The first is timing. Stick it all in the stock market in one go, and you might be lucky, but you might also be hitting the top of the market and spend a miserable couple of years watching your precious pot dwindle.

This is a particular problem at the moment as investors fret about the artificial intelligence (AI) trade. Markets have had a very strong run, fuelled by a handful of large technology stocks. The MSCI World was up 24% in 2023, 19% in 2024 and 20% so far in 2025 (to the end of November). Scott Spencer, investment director, Titan Square Mile, says: “There are concerns over a bubble developing in AI-related stocks and the dominance of a handful of US companies which have been driving returns for some time.”

Oliver Pile, private client investment director at Tyndall Investment Management, agrees that there is plenty to worry about, noting that markets are at all-time highs and extremely concentrated. He adds: “We’ve seen wobbles in the private credit market, government debt burdens are widely recognised as unsustainable, not to mention trade wars, US consumer weakness and geopolitical tension. Given this backdrop, one could be forgiven for wanting to hide the £1 million under the mattress, a value-destructive strategy in real terms, but there are antidotes available.”

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For this reason, it matters how you invest. Pile’s view is that an investor should gradually invest the windfall in the market and try to achieve genuine balance. “Rather than hold the windfall in cash while it is deployed, I would put most of the uninvested balance into a short-dated gilt. The UNITED KINGDOM 0.375 22/10/2026 (LSE:T26A) is paying a yield to maturity of 3.6%, most of which is a tax-free capital uplift to maturity.”

Drip-feeding

From there, an investor has bought themselves some time for reflection. James Scott-Hopkins, founder of EXE Capital Management, says investors should then drip-feed their pot into companies or funds over a period of six to 12 months. “You can then accelerate the pace of investment should markets fall suddenly, as that’s going to offer the best value.”

Pile’s first port of call would be “all weather” funds. These capture some of the market upside but - crucially - dampen losses if markets dislocate. “Examples include Ruffer Investment Company (LSE:RICA), Sebastian Lyon and Charlotte Yonge’s Troy Trojan O Acc fund, and BH Macro GBP Ord (LSE:BHMG), which all have a good track record of protecting in market downturns,” he says.

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Only at that point would an investor start looking at pure stock markets funds. Spencer says investors need to tread carefully: “We believe it’s best to take a diversified approach and avoid too much exposure to what has been an incredible US stock market over the last decade, instead investing across markets where valuations are cheaper.”

Scott-Hopkins likes the AVI Global Trust Ord (LSE:AGT). Manager Joe Bauernfreund favours family controlled businesses such as Lvmh Moet Hennessy Louis Vuitton SE (EURONEXT:MC), looking for companies that are trading at significant discounts to the value of their assets. He also likes Nick Martin’s Polar Capital Global Insurance fund, which tends to zig when the rest of the market zags.

Ben Mackie, senior fund manager at Hawksmoor Fund Managers, is looking among UK small-caps, Japan and Asia, which tend to provide fertile hunting ground for active managers.

Pile also likes these areas: “In the UK, the Aberforth Smaller Companies Ord (LSE:ASL) trust has a good long-term track record and currently trades on a discount to NAV. In Japan, activism continues to unlock shareholder value and listed investment trusts such as Nippon Active Value Ord (LSE:NAVF) and AVI Japan Opportunity Ord (LSE:AJOT) play to this theme. I would also include a few direct stocks, with some cheap large-cap defensive exposure (eg healthcare) alongside some more cyclical smaller companies.” Victrex (LSE:VCT) is one of his holdings.

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David Coombs, head of multi-asset at Rathbones, is finding plenty of opportunities in Asia. He notes: “We also see some signs of recovery in China, but are particularly interested in other Asian economies which should be supported by the next phase of US monetary policy, i.e. falling interest rates. Also the demographics are much more supportive than Europe over the next five years.”

Managers are finding different ways to invest in the US and technology. Coombs says the US still has its merits. “While there are concerns of a growth pause in the US at the moment and fears around an AI bubble, we believe the economy is very resilient and when talking to our companies, optimism remains pretty high,” he says.  

Scott-Hopkins says: “You don’t want to avoid AI companies altogether, as their earnings might continue to surprise. We like to access this space via the Polar Capital Technology Ord (LSE:PCT) trust managed by the very able and experienced Ben Rogoff - he was around in the dotcom bubble at the turn of the millennium. He has already started to trim his exposure to the Magnificent Seven in favour of the ‘picks and shovels’ – the energy companies and data centres that will be required to support AI industries.”

Pile says that while many investors will favour a cheap tracker fund to take exposure to the US, it may be better to use an equal-weighted rather than market-weighted product, which would have less exposure to the mega-caps. Examples on interactive investor include Invesco S&P 500 Equal Weight ETF Acc GBP (LSE:SPEX) and Xtrackers S&P 500 EW ETF 1C GBP (LSE:XDWE).

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He says the VT De Lisle America B GBP fund, which focuses on thematic investing in small and mid-cap US equities, could provide a balance to a passive fund.

Minimising shocks

Spencer says investors should expect volatility in the value of their windfall, but adds, “higher valuations and stock market concentration can amplify swings in share prices and produce wider drawdowns”. This makes the argument for incorporating some ‘shock absorber’ options.

Mackie suggests core infrastructure, where inflation-linked cash flows ensure a regular income. He adds: “Gold is a diversifier in a range of scenarios – specifically as a hedge to the risk of currency debasement.” Pile also votes for a small allocation to commodities and gold.

“Monetary policy is easing despite inflation remaining stubbornly above target in much of the Western world. Commodities, as real assets, are often seen as a natural and effective hedge against inflation and typically have a low correlation to equity and bond markets. I would hold both an ETF, providing exposure to the underlying commodities, such as the Invesco Bloomberg Commodity ETF GBP (LSE:CMOP), and companies involved in the commodity industry, such as Glencore (LSE:GLEN) or a trust like the BlackRock World Mining Trust Ord (LSE:BRWM).”

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A bond element can also reduce volatility. Scott-Hopkins says interest rates have risen from their lows, and bonds will once again provide some protection against falling stock markets. “It’s now questionable whether interest rates will fall amid rising inflation risks worldwide, but if they do, attractive gains can be made. In the meantime, investors are being paid to wait with attractive yields. Both PIMCO GIS Income Instl GBP H Acc and Royal London Global Bd Opps Z GBP yield around 6%.” This is handy for anyone who might need an income from their investments.  

He also suggests incorporating a fund such as Personal Assets Ord (LSE:PNL): “In the 17 years Troy has been running the fund, there have been only three negative years, and the worst year-over-year decline was -4.8%.”

How to spend a chunky windfall is a nice problem to have, but there are complexities to the current environment that investors need to navigate. It would be galling to lose it on a misplaced AI bet. Investors’ priority should be to create a balanced portfolio, fit for the long term.