Interactive Investor

How to invest £50,000

A £50,000 lump sum can make all the difference to your financial future. It might mean a more comfortable retirement, make a holiday home a reality or enable you to help the kids through university or onto the property ladder.

But to ensure your windfall or lump lives up to its potential, you’ll need to invest it well. Find out the best way to invest £50,000 with our guide.

Should I save or invest £50,000?

The easiest way to decide whether you should save or invest £50,000 is to think about what you want to do with the money and when you’ll need it.

That means you may need to invest £50,000 in separate pots.

Any money that you are likely to need in the next five years – for a house deposit perhaps or to pay for building work or a big trip – should ideally be kept in a cash savings account. 

That’s because you won’t want to risk losing money before you need it.

You won’t lose money with a savings account. However, over time there’s a significant risk that money left to languish in a savings account won’t achieve the returns you need and its spending power will be reduced by inflation.

When your money is invested, its value will rise and fall in line with the performance of the investments you’ve chosen. However, so long as you don’t take unnecessary risk and can leave your money for five years (at the very least), it should earn more than it would in a savings account.

With a lengthy investment horizon you should have time to ride out any short-term volatility and reap the rewards of compound returns. This is when your returns start earning returns, giving your pot a significant boost over the years.

You can find out more about the difference between saving and investing with our guide.

What to think about before you invest £50,000

Over time investing £50,000 will likely generate better returns but there are a number of things to consider.

  • Will you need some of your £50,000 within the next five years? If so keep that money in cash. Make sure you have some cash set aside for emergencies too – experts normally recommend three to six months’ expenses.
  • Do you have any expensive debts to repay? The interest you’re paying on any credit cards and loans will likely outstrip the money you make by investing, so it’s a good idea to clear those first.
  • Do you have a mortgage? Investing £50,000 in your mortgage could save you thousands in interest and knock years off your mortgage. Just be mindful that mortgages often limit overpayments to 10% a year. Mortgage interest isn’t normally as high as other forms of borrowing, however, so whether you invest or pay down your loan is normally a personal decision and depends on your own priorities.

How to get started with investing

Whether you’re investing all or part of your £50,000 it’s easy to get started. Online investment platforms offer access to a huge array of investments.

This includes UK and global shares as well as funds, investment trusts and exchange-traded funds (ETFs) that give you access to a managed portfolio of shares.

Platforms charge a fee for their services; so it’s important to compare prices to get the best value for money. 

We offer a variety of flat-fee options starting from £4.99 a month, which means your costs don’t rise as your investment grows.

Investing your £50,000 tax-effectively

It’s also important to invest your money tax-effectively to reduce the amount of tax you pay on your investment.

Platforms offer a choice of accounts, all of which are subject to different tax treatment. But, as contribution limits apply, you may need to spread your money across a number of accounts if you’re investing £50,000.

Each type of account will usually offer access to the same range of investments.

  • ISAs: These are tax-free accounts which means no tax will be deducted from returns, or when you make withdrawals. You can access your money when you wish. Each year you can invest £20,000 tax-free in an ISA. 
  • SIPPs: You can also choose to invest in a pension to boost your retirement savings. The big draw is that your contributions benefit from tax relief equivalent to the rate of income tax you pay. Each year you can invest 100% of your income into pensions (including workplace schemes) up to a maximum of £60,000 a year. You can’t access your money until you’re 55 (rising to 57 in 2028) but from then you can make income and lump withdrawals as you need.
  • Trading account: This is a standard account – you can access your money at any time but you may have to pay tax on your returns. It normally only makes sense to use a trading account once you’ve used your ISA allowance.

Choosing the right investment options for you

Whether you invest in an ISA, pension or trading account, your platform will offer access to a choice of investments:

  • Shares: Shares are investments in individual companies. Pick a winner and you could enjoy great returns, but it’s a higher risk strategy and requires a lot of research.
  • Funds: Funds offer you access to a portfolio of shares that are managed on your behalf. Funds may invest globally or by regions for example the UK or US, or emerging markets. Others have a more specialist brief, such as sustainable investment. You can choose cheaper passive funds that track an index like the FTSE 250 or actively managed funds with a manager at the helm. 
  • Investment trusts: Investment trusts work in a similar way to funds, but are structured as companies in their own right and listed on the stock market. The price of shares in an investment trust is therefore governed by supply and demand – it may be trading at a premium or a discount to its underlying value.
  • ETFs: Exchange traded funds offer access to a broad basket of shares that typically track an index like the FTSE 100 and are traded on the stock exchange like a share.

Unless you’re an experienced investor, it normally makes most sense to invest using collective investments like funds, investment trusts and ETFs. You don’t need to research what shares to buy or sell and they’re a cheap way of accessing a broad range of companies.

If you’re confused by the options (and there are a lot), interactive investor has lots of guidance to help you make more informed decisions as well as plenty of expert fund ideas. 

These include our Super 60 list of rated funds, Quick-start funds and our five ready-made portfolios.

Is it risky investing a £50,000 lump sum?

Investing £50,000 or any lump sum can be daunting.

By investing a lump sum you’ll be ensuring all of it has the same length of time in the stock market, increasing its potential for growth. You’ll make quick gains if markets are rising, but if they’re volatile your money may get some early knocks.

It’s important to have a long-term view and not be too concerned by short-term volatility. However, it’s possible to reduce this risk, by investing your money gradually over a period of time.

5 tips for investing £50,000

Diversify your investments: spreading your money across a broad range of holdings reduces your risk. This doesn’t necessarily mean you need to buy lots of investments. Some collective investments like funds are designed as core holdings and invest in broad range of companies with good geographical spread. Some also invest in corporate bonds and gilts to reduce risk.

Don’t forget tax: Make the most of your ISA and pension allowances to reduce the tax you pay on your investments. If you’re married you can combine allowances.

Watch out for charges: Charges can put a real drag on your returns, so consider options with lower charges for example passive funds or ETFs. In many cases returns will be similar to more expensive actively-managed funds.

Keep a long-term view and don’t panic when markets are volatile: The value of your investments will fall at some point, but it’s important not to let short-term volatility knock you off course if you still have time on your side. Panic-selling locks in your losses and means you miss out on the recovery. 

Don’t feel the pressure to pick the ‘perfect’ investment: The length of time you’re in the market and the spread of investments you hold are often more important than your individual fund choices. So long as you aren’t taking unnecessary risk it’s normally better to do something than nothing.

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