What you'll learn in this guide...
- Before investing, consider your individual goals, needs and risk appetite
- Long-term investments give you the best chance of getting greater returns
- There’s a wide range of different account types and assets to invest in
- Ensure you’re comfortable with potential losses as the market fluctuates
What's the best way to invest £10,000?
Your £10,000 has the potential to get you the highest return if it's invested in the stock market over a long period of time.
However, each investor's 'best way' to invest looks different depending on their individual circumstances. A great place to start is by figuring out what matters to you.
Here's a checklist to help you decide what to do with your £10,000:
1. Set your investment goals
Your first step is to decide what your goals are. What do you want to do with your money in the future? Consider how long you want to invest for and when you want to access the money again. You might invest to:
- Save for retirement
- Become financially independent
- Establish financial security
- Generate income
- Provide for loved ones
However, if your goals include looking to clear debt or build up emergency ‘rainy day’ savings, you’ll be better prioritising your money to pay these off.
You should also decide whether you want to be hands-off or hands-on.
If you are a hands-off investor, you will be looking to avoid regularly making changes to your investments. One option is to consider outsourcing the decision-making to professionals that will do the hard work for you, such as the interactive investor Managed ISA.
Those happy to be more hands-on will likely make their own investment decisions and keep on top of the portfolios more, including carrying out regular reviews.
2. Decide if you want to invest for the short, medium or long term
Choosing your investment goal will shape whether it’s best you invest your money for the short, medium or long term. While everyone's idea of short, medium and long term may vary, here are some general timelines to consider.
A short-term investment involves accessing your money after 1-5 years. The best options here would be actively investing in:
- Stocks & Shares ISA
- Trading Account
- Cash ISA
- High-yield savings account
With these investments, you can cash in your investment at any age, unlike a pension.
A medium-term investment involves leaving your money between 5-10 years. The best options for this would be actively or passively investing in:
If you plan to leave your investment for 30 years and will be turning 55 (rising to 57 in 2028) within this time, a pension would be a better option than an ISA. This is because, with any pension, you get a 25% boost from the government on whatever you pay in (within certain limits). And those in the higher rate and additional rate tax bands (those who pay 40% or 45% tax respectively) can claim back even more. Your money grows tax-free too, but any income you take in the future may be taxable.
An ISA, meanwhile, is a type of savings or investment account that you can access at any time, and you pay no tax on any interest, growth and dividends.
Long-term investments are intended to be held for a significant period, usually 10 years or more. The best option for this type of investment is actively or passively investing in:
By investing your money in a pension, you'll benefit from the tax advantages discussed above, which boost the amount invested.
3. Choose a reliable investment platform
When choosing a platform to invest with, ask yourself these questions:
- What fees will I be charged and will these change as my pot grows?
- What investment options will I get access to? Is there a wide range for both beginners and more experienced investors?
- What support do they offer? Where can I go if I need help?
For example, at ii, we offer a variety of flat-fee options, starting from just £4.99 a month, so your pot won’t be eroded by increasing percentage fees. You’ll also have full access to invest your money where you’d like, with one of the widest ranges of investments on the market. If you're facing any issues, you can access top-rated support through our customer service team and advisory articles from award-winning journalists.
4. Diversify your investments
To reduce your risk when investing, an important step is to diversify. This means spreading your money across a range of investments. You could look to own a range of assets - shares, bonds, property and cash. Owning a mixture of investments helps to spread risk.
A diversified portfolio will look different for everyone because people's financial goals and risk appetite are different, but good diversification means that at least one asset will perform well even if all the others don't.
- Shares - direct holdings in companies listed on UK and overseas stock markets
- Investment funds - a collective investment that is managed on your behalf by a fund manager
- Investment trusts - another form of collective investment, but unlike funds, they're structured as companies and listed on the stock exchange
- ETFs - another form of collective investment, exchange-traded funds (ETFs) seek to replicate the performance of an index, commodity or basket of assets. Many ETFs track long-established equity indices like the FTSE 100 or S&P 500. ETFs can be traded throughout the day on the stock market, much like individual stocks.
- Bonds - a company or government issues a debt with an agreement to pay interest against the money the investor is loaning them. The bond investor also receives the sum they loaned when it matures, so long as the issuer is not in serious financial difficulty.
5. Make sure your investment is tax-efficient
The last step is to make sure your money goes as far as possible by investing in a tax-efficient account – such as an ISA or pension. With these accounts, your returns are sheltered from UK Income Tax and Capital Gains Tax. With a SIPP, you can also receive tax relief from the government.
Is £10,000 a good amount to invest?
Yes, investing £10,000 is a great way to start growing your money. But to improve the chances of investment success, it is important to play the long game. It's also wise to diversify it across different types of investments such as different assets, sectors and countries to ride out stock market fluctuations and maintain an upward trajectory.
Considering your individual circumstances will help you decide if this is a ‘good’ amount for you. You’ll need to make sure you can afford to tie your money up for at least five years and be comfortable potentially losing money as your investment’s value can rise and fall.
What other amounts could I invest?
If you feel comfortable investing more, consider larger lump sums like investing £20,000, £50,000 or £100,000. Think about your individual goals, experience and risks before making your decision.
The risks and benefits of saving vs investing £10,000
You also need to consider whether you should be saving or investing your £10,000.
Saving is a lower-risk option, as you’re less likely to lose your money. But it doesn’t have the same growth potential as investing and you may struggle to keep pace with inflation.
While the benefits can be great, you need to consider your attitude to investment risks. If you don't feel comfortable with this level of risk, saving might be a better option for you.
The benefits of investing £10,000
- The potential to beat inflation
- You could see higher returns compared to cash savings
- It can be tax efficient, depending on your investment strategy
- Ample room to diversify your investments to reduce your risk
The risks of investing £10,000
- Market downturns can cause short-term losses
- You could lose some or all your initial investment
- Your investment could be affected by economic and global trends
- You could enter the market at a disadvantageous time (this risk can be reduced by regular investing - as we explain below)
Tips to invest £10,000 wisely
Don’t strive for perfection
It’s important not to let a huge range of investment options put you off. Successful investing comes from investing regularly into a diversified spread of investments over a long period of time.
Watch out for fund charges
Charges on actively managed funds are higher than passive funds (or trackers). 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, some of which cost 0.1% or less a year. Check out our guide to the cheapest ways to track global markets.
Some investment choices (like funds and ETFs) have a Cost Disclosure Document that explains the fees you will be paying. You should read this before investing to understand additional fees and prevent falling for unnecessary charges.
Have a plan for your money
Before committing money to the stock market, decide what you want to achieve, how long you are planning to invest for, and how much risk you are prepared to take. Doing so, will help narrow your focus and make decision-making easier.
Hold your nerve
Remember that the value of your investments will rise and fall over time. Try not to panic with short-term volatility as if you sell your shares when markets fall, your losses will be locked in, and you won’t be able to benefit from the recovery. Remind yourself to take a long-term view that history shows that markets will usually rise again. The Key Information Document contains information to help you understand the nature and risks of investing in a fund and also offers guidance on how to experience minimal volatility.
Review your investments regularly
While successful investing does require you to have confidence in your strategy, you still need to regularly review your investments. It’s important to consider why your investments aren’t performing well and look if markets are struggling across the board or if it’s just your fund.
You may need to rebalance your investments by selling gains from some holdings and reinvesting them in others, so your asset allocation remains where you want it, and your risk profile doesn’t alter. Experts recommend reviewing your investments at least every six months, but reviewing riskier investments like stocks more frequently would be wise.
Is investment the right route for me?
While investing £10,000 offers the greatest growth potential, before you make any decisions, it’s worth thinking about:
- Major expenses in the next few years - you might want to keep more of your money in cash accounts if you’ve got upcoming big expenses such as buying a new house, getting married or starting a family
- Emergency savings - experts typically recommend keeping three to six months’ salary in cash to make sure you’re covered for any unexpected expenses
- Your debt position - it would make sense to pay off any credit cards or loans before investing. Depending on your priorities, you may also benefit from using this money to pay off your mortgage
- Commit to invest for at least five years - over the short term the stock market can be a pretty unforgiving place
If you feel investing is right for you, we have a range of accounts available. Take control of your investments with a tax-efficient ISA, let the experts choose the investments for you with a Managed ISA, or enjoy flexible investing with a Trading Account.
Should I invest £10,000 in one go?
Investing all your money in one go is called "lump sum investing" and investing small amounts over time is called "regular investing". There are pros and cons to both.
If you get your market timing spot on and buy investments ahead of stock markets experiencing a good run of performance, a lump sum tends to work more in your favour than investing regularly. However, it is difficult to predict stock market behaviour with any great accuracy. If you get your market timing wrong, you could end up putting all your cash into the market just before a nasty dip.
Investing regularly is a way to reduce the risk of getting market timing wrong. You could either make investments in stages or set up a regular investment plan to drip-feed your money into the stock market. With regular investing, you end up buying shares at different prices. This strategy benefits from what is known as pound-cost averaging. When stock markets fall, the regular investment purchases more shares or fund units. Conversely, when stock markets rise, fewer shares and fund units are bought. Over time, the averaging effect of regular investing reduces the risk of getting market timing wrong. Alternatively, you can choose to invest part of your £10,000 and leave the rest in a cash account. You can always invest this money later if you don't need to spend it on anything else.
