Interactive Investor

How to invest £30,000

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

A £30,000 lump sum can make a big difference to your financial future; from providing a deposit for your first home to helping you start a new business. It could improve your standard of living in retirement or enable you to help out the younger members of your family.

But to get the best returns from your £30,000, you need to invest it well. Find out how with our guide.

What’s the best way to invest £30,000?

If you aren’t sure how to invest £30,000, a good starting point is to ask yourself two questions:

•    What do you want to do with your money? 
•    When will you need it?

There are numerous ways to invest £30,000, but once you’ve got a goal in mind for your money, it’ll be much easier to narrow down your options.

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Short-term goals (five years or less)

If you’ve got a specific expense in mind for your money (like a wedding, a house deposit or renovations) and you’ll need that money in less than five years, it’s usually best to keep it in a savings account. This is because you do not want to risk making any losses. 

To get the best return on your £30,000, it’s important to shop around and get the highest interest rate possible that offers the access you need. If you can tie your money up for a year or more you are likely to earn a higher rate on your savings than a more convenient instant access savings account.

Medium-term goals (five to around 15 years)

If there’s five years or more before you need your money, cash is unlikely to deliver the best return. Although you’ll be earning interest on your money, there’s a risk you’ll lose out in real terms. This is because inflation – that’s rising prices - will reduce the spending power of your savings over time.

For your money to really grow, you need your returns to outstrip inflation, and the best way to do that is usually to invest in the stock market. 

Although there is a risk associated with investing in the stock market, over time your money is likely to achieve better returns. By investing for a minimum of five years, your money has time to ride out short-term volatility but also to benefit from compound returns. This is when your returns start earning returns and over time it can give your investment a significant boost.

Online platforms make it easy to start investing and offer access to UK and overseas shares as well as so-called collective investments which invest in a portfolio of shares for example ETFs, funds and investment trusts. Using a collective investment is normally lower risk than buying shares directly as it gives you a higher level of diversification.

Platforms offer a choice of account types including ISAs and SIPPs which shelter your capital from tax, as well as simple trading accounts.

For medium-term goals it makes sense to use a stocks and shares ISA as this will ensure you don’t pay any tax on your gains and you can still access it whenever you like. 

You can, however, only invest up to £20,000 in an ISA each tax year.

If you want to save specifically for a child or grandchild you can also invest in a junior stocks and shares ISA on their behalf. They’ve got their own allowance of £9,000 each year and they won’t be able access the money until their 18th birthday.

Long-term goals (15 years or more)

If you’ve got a longer investment horizon, you might feel comfortable taking a bit more risk with your money. You might, for example want to explore investing some of your pot in higher risk funds, for example those investing in emerging economies or smaller companies.

But if you are saving for your retirement, or likely to be in retirement when you come to access your money, it’s worth thinking about the type of account you use.

If you invest in a Self-Invested Personal Pension (SIPP), you’ll get access to the same choice of investments, but you’ll get tax relief on contributions, equivalent to the rate of income tax that you pay. You won’t be able to access your money until you turn 55 (rising to 57 in 2028), but you will have free choice around how you access your money and can take lump sums if you wish.

Up to 25% of your pension can normally be taken tax-free but income and lump sums thereafter may be taxable.

Each year you can invest 100% of your income, up to a maximum of £60,000, into a pension.

But pensions aren’t the only way to save for retirement.

A stocks and shares ISA can be also be a helpful way to boost your retirement income. Although there’s no tax relief on contributions, any income or lump sums you take from it won’t be taxable. This means ISAs can be a helpful way of boosting your retirement income and add a bit of flexibility to your plans. You can access an ISA whenever you need it and won’t have to wait until you are 55 (or 57 from 2028). But again, you can only invest £20,000 into an ISA each year. 

Choosing the best option for you

Deciding the best way to invest £30,000 can be complicated. But you don’t have to invest everything in the same place.

You may well have short, medium and long-term goals and choose to split your money between savings, ISAs and pensions.

Before you make any decisions, it’s also important to think about debts. It’s always a good idea to pay off any expensive debts like credit cards or loans as they are likely to cost more in interest than you’ll make in returns.

Mortgages don’t fall into this category as rates are typically lower. Nonetheless you might also want to consider overpaying your mortgage if paying it off as soon as possible is priority for you.
It’s important to check the terms of your mortgage though as overpayments are often limited to around 10% of your outstanding loan each year.

Is investing £30,000 in one go risky?

Investing a £30,000 lump sum in one go can be nerve-wracking. Although lump sum investing can make you big gains when markets are rising, if markets are volatile you could end with losses quicker than you’d anticipated. 

You should be able to recoup losses over time. However, if you’re concerned, it is possible to reduce this risk by investing a smaller amount and gradually increasing your investment over time.
Alternatively, you could use a lump sum to set up a regular investment plan and drip feed your money into the stock market each month.

Tips to successfully invest £30,000

  • Build a diversified portfolio – spread investments across the globe and consider fixed-interest holdings like government bonds (gilts) if you want to reduce your risk further.
  • You don’t need to choose lots of investments. Some funds are designed as core holdings with diversification in mind.
  • A passive, index-tracking fund will have lower charges (and be arguably easier to choose) than an actively-managed fund.
  • Use your ISA allowance and pensions allowance to ensure you don’t pay more tax than you need on your investments.
  • Be patient and don’t get bogged down by picking the ‘best’ investments. Diversification and time in the are often the keys to investment success.
  • Don’t panic. Stock markets will always suffer short-term volatility, but cashing in investments will only lock in your losses and remove any chance to benefit from the recovery.

If you aren’t sure where to invest, interactive investor has lots of fund ideas to get you started, including the ii Super 60 list of rated funds, Quick-start funds and five ready made portfolios.

Join us today and take control of your financial future with award-winning, great value investing.