Interactive Investor

How to invest £10,000

Thinking of investing? Open an ii ISA before the end of July and get £50 free trading credit to get you started. 

If you’ve got £10,000 to put away for your future, you’ll want to make sure it works as hard as possible and gives you a good return.

Find out everything you need to know about investing £10,000 before you decide what to do with your cash.

Saving versus investing £10,000

The very first question you need to ask yourself is should I save or invest my £10,000?

Saving is the lowest risk option, in so far as you won’t lose any money. However, it’s unlikely to grow much either, and over the years you may find its growth doesn’t keep pace with inflation, meaning its spending power is reduced.

So long as you can afford to tie your money up for a reasonable amount of time, your money has the potential to grow more if you invest it in the stock market.

Get £100 when you open an ISA or Trading Account

New customers who open an ISA or a Trading Account before 31 December 2023 could receive £100 cashback when they fund their account. Subject to a minimum account value and holding period. Terms and fees apply.

Is investment the right route for me?

While investing £10,000 offers the greatest growth potential, it isn’t right for everyone and there are a number of considerations you need to make first.

Before you make any decisions, answer the following questions:

  • Do you have any major expenses in the pipeline? If you’re saving for a house, getting married or wanting to start a family it might make sense to keep more of your money in cash accounts.
  • Do you have any emergency savings? It’s always important to have a pot of money for unexpected expenses. Experts typically recommend keeping three to six months’ salary in cash.
  • Do you have any debts? If you have expensive debts like credit cards or loans, you’ll be better off paying those down first. Depending on your priorities you may also want to consider using the money to overpay your mortgage. This means balancing out the potential gains you can make from investing, versus interest savings on your loan and is a decision that normally comes down to personal preference.

As a guideline, it is only usually worth investing if you can afford to tie up your money for at least five, but ideally 10 years. This gives your money the best chance of riding out short-term volatility and benefiting from compounded returns.

Should I invest £10,000 in one go?

There is a risk associated with investing lump sums. If markets are rising your investment will grow rapidly, but, if markets are falling, you could find yourself nursing losses sooner than you’d anticipated.

However, if you’re concerned about investing a £10,000 lump sum, you can mitigate these risks by investing your money gradually. You could either make investments in stages or set up a regular investment plan to drip-feed your money into the stock market.

Regular investment reduces the risk of buying at the wrong time and enables you to take advantage of ‘pound cost averaging’. Rather than buying all your shares or units in one go, you’ll be buying them over a period of time and getting an ‘average’ price for your investment. And, when prices are down, you’ll get more units or shares for your money, increasing your potential for gains when markets rise.

Alternatively you can choose to invest part of your £10,000 – leaving some money in a cash account. You can always invest this money at a later date if you don’t need to spend it on anything else.

Get investing

It’s pretty easy to get an investment plan up and running.

Choose your platform

The easiest way to start investing is to open an account on an online platform, which offers access to a broad range of investments.

However, platform charges can place a drag on your investment’s performance, so it’s important to shop around for a platform that offers good value for money.

interactive investor charges a variety of flat fee options, starting at £4.99 a month. Flat fees mean that the cost of running your platform doesn’t increase as the value of your investments grow.

It’s also a good idea to ensure your chosen platform offers the support and guidance you need to help you manage your investments.

Make your investment tax-effective

Your platform will likely offer a choice of accounts. By choosing a stocks and shares ISA, your investment will be sheltered from tax. This means there will be no tax to pay while it grows or when you take money out.

The current ISA allowance is £20,000 a year. You can also shelter your investment from tax in a SIPP and get tax relief on your contribution, however you will not be able to access your money until you are 55 (rising to 57 in 2028).

Select your investments

Next you need to select investments for your stocks and shares ISA. You can choose individual shares, but if you’re not an experienced investor, it’s lower risk to invest in a collective investment that invests in a portfolio of shares on your behalf.

This can include ETFs, funds and investment trusts and give you access to assets including company shares, commodities like gold, property and bonds (for example corporate or government bonds).

interactive investor offers a wealth of fund ideas to get you started.

This includes our Quick-start Funds, ii Super 60 list of rated funds and ii ACE 40, the UK’s first rated list of sustainable investments.

Make the most of your £10,000 investment

Watch out for fund charges

Charges on actively-managed funds that have a manager at the helm choosing what shares to buy and sell can be as much as 1.5%, sometimes more. Passive funds (or trackers) that replicate the performance of their designated index are much cheaper, with charges as low as 0.1%. It can be tricky to find active fund managers that consistently beat their benchmark, so you might find you get similar returns and save money with a low-cost tracker.

Diversify, diversify, diversify

It’s important to spread your money across a range of investments. This ensures that if one holding suffers, it doesn’t drag your whole portfolio down with it. Diversification can mean investing in different assets – think cash, bonds, equities and potentially property but also within those asset classes too. For example ensuring stock market investments are spread across different countries, industries and company sizes. You don’t need to invest in lots of funds to build a diversified portfolio, some funds are constructed as core holdings with diversification in mind.

Have a plan for your money

Having a goal in mind when you invest will make it easier to choose the right investments for you. For example, if you want to help your child buy a home in the next 5-10 years you may not want to take as much risk as you would if you’re thinking about retiring in 30 years’ time.

Hold your nerve

The value of your investment will rise and fall over time. Short-term volatility can make you panic, but it’s important to take a long-term view and remember that markets will usually rise again. Selling when markets fall will only lock in your losses and remove your opportunity to benefit from the recovery.

Review your investments regularly

While successful investing does require you to have confidence in your strategy, you still need to regularly review your investments. If an investment isn’t performing well it’s important to think why before making any changes. Are markets across the board struggling, or is it just your fund? If you are investing in actively managed funds it’s particularly important that your fund’s performance justifies its fee. Over time you may also need to rebalance your investments, which means selling gains from some holdings and reinvesting them in others to ensure your asset allocation remains where you want it and that the risk profile doesn’t alter.

Don’t strive for perfection

Online platforms offer access to a huge range of investments which can be overwhelming. But it’s important not to let the range of options, or pressure to find the best fund put you off. Successful investing comes from investing regularly into a diversified spread of investments over a long period of time.

Investing £10,000 FAQs

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