How to invest £50,000: Smart strategies to grow your wealth

What to think about before you invest £50,000

While investing carries greater risk than cash, it's important to be aware that cash is not the risk-free option many assume it to be. Its Achilles heel is that inflation slowly but surely erodes its real value over time.

Of course, while there are no guarantees, the history books tell us that the best way to stop your money eroding is to invest. According to Barclays' Equity Gilt Study 2024, UK shares have, on average, returned 3.1% a year in real (inflation-adjusted) terms over 20 years. In contrast, cash has lost 1.8%. US shares have fared better, up by 6.4% a year on average over the same period. 

So, if you're thinking about investing £50,000, it could be a great way to build your wealth over time. 

It's easy to get caught up in finding the 'best way' to invest. In reality, the best way will depend on your personal goals and circumstances. Knowing your priorities and what matters most will help you make the right choices when it comes to investing money.

Here's a few things to consider before investing your £50,000:

Your current financial obligations

Will you need some of your £50,000 within the next five years? Do you have any upcoming financial priorities, such as:

• Buying a new home 
• Starting a new business 
• Paying for a wedding, a big trip, or a house renovation 
• Covering childcare costs

If so, you may be better off keeping some of your money in a cash savings account. Timescale is also very important. If you have short-term goals that you are aiming to achieve in the next couple of years, sticking to cash is very sensible, as over the short-term the stock market can be unforgiving. 

That said, having other financial obligations doesn't mean you can't invest. You just need to find the right balance based on your circumstances.

Paying off any outstanding debts

It’s a good idea to try and clear any outstanding debt before deciding to invest. This is because if you’re paying high interest on any credit cards or loans, it's very likely to outstrip any profits you make. Paying these off first would put you in a healthier position financially and help your credit score. 

Depending on your priorities, using some of your £50,000 to pay off your mortgage could also be a good option. 
However, it may make sense to pay off higher-interest debts or invest the money rather than paying off your mortgage early. Ultimately, it is a personal decision. 

Building an emergency fund

It's wise to keep some money set aside for unexpected emergencies and expenses. A good rule of thumb is to put three to six months' worth of salary in an emergency fund. 

You may want to keep your emergency fund in an easy-access savings account. You could also consider putting it in a low-risk alternative like money market funds, which could offer better returns. 

Can you invest for a minimum of 5 years?

If you can keep your money invested for at least 5 years, it has the potential to earn more than it would in a savings account. However, there are no guarantees. Having said that, investing for at least five years and ideally longer gives investments the best opportunity to ride out potential market fluctuations and maintain an upward trajectory. Over the long term, history shows that stock markets recover from sharp declines. 

Are you prepared for the risks (and rewards)?

Investing £50,000 or any lump sum can be daunting. While there’s potential for strong returns, it’s important to be aware of the risks of investing too. Markets can go up and down, so you need to be comfortable with the value of your investments potentially going down. Try not to panic if this happens. If you sell your shares when the market is down, your losses will be locked in, and you won’t benefit from the recovery. Having a long-term view is essential to let your money recover from market fluctuations and short-term volatility.

For those concerned that they may panic-sell when markets fall on bad news, it is well worth considering drip-feeding money into the market. For example, a regular plan involving investing at the start of every month does away with the risk that you might put all your cash into the market just before a nasty dip.

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. 

At interactive investor, regular investing is free.  There are no trading fees to pay, and you can invest as little as £25 each month to gradually build up your portfolio. However, you still have to pay the trading fee when you sell your investments, and other fees may apply.

Defining your investment goals

Take time to think about what you want to achieve by investing your £50,000. You might invest to:

• Build up your pot for retirement 
• Provide for loved ones
• Generate income 
• Become financially secure

Deciding your investment goals can help shape the length of time you want to invest and your strategy. While everyone’s idea of investing for the short, medium, and long term may differ, these are some general timelines to consider:

• A short-term investment would involve accessing your money after 1-5 years
• A medium-term investment would mean leaving your money for 5-10 years
• A long-term investment would be for a significant period, usually 10 years or more

Knowing your goals and how long you plan to invest will help you decide what to invest in and where.

Setting safety measures before investing

Whether you’re a new or experienced investor, understanding and managing risk is important. Speaking to a financial adviser before you make any decisions can help you gain a personal, more well-rounded understanding of what to do with your money.

Diversifying your portfolio will also help minimise the risk you might face. This means spreading your money across a range of investments, primarily shares, bonds and commercial property. Diversification can also be achieved by mixing large and small companies, having a spread of sectors and regions, and having exposure to different investment styles, such as growth and value. Allocating to alternatives, such as infrastructure, private equity and commodities, can also improve diversification.

The theory is that different types of investments are unlikely to all outperform or underperform at the same time, reducing the volatility of your overall portfolio. A mixed investment approach gives a portfolio ample opportunity to grow, while guarding against short-term volatility.  

Remember that the value of your investments will fluctuate over time. Set realistic expectations by taking a long-term view, as history shows that markets will usually rise again.

Choose the right investment platform

Another thing to consider is which platform to invest your £50,000 with. Before choosing a platform, ask yourself a few questions:

• Fees and charges – How much does the platform charge and will their fees increase as my portfolio grows? 
• Investment options – What investment options will I get access to?
• Support – What help is available if I need it?

For example, at ii, we offer flat-fee options, starting from just £4.99 a month, so your pot won’t be eroded by increasing percentage fees as your investments hopefully grow. You’ll also have access to one of the widest ranges of investments on the market. If you need support, our top-rated customer service teams and expert news articles are here to help.

How to invest £50,000 wisely

Investing £50,000 requires thinking strategically about where to put your money. Your £50,000 has strong growth potential if invested wisely, so ensure you understand the market, be vigilant, stay informed and pick the right strategy. Before you invest, you should:

Choose the right investment based on your goals

Think about what you want to do with your money and when you’ll need to access it. This will influence the approach to investing that's most suitable for you to take.

For example, if you’re saving for retirement over the next 30 years, you may choose a Personal Pension and invest in higher-risk assets such as stocks. As your money is invested for a long period, it has more time to ride out market fluctuations and benefit from the effects of compounding. 

Likewise, if your goals are medium-term, such as to help fund private school fees or a future property renovation, you might choose a Stocks & Shares ISA. 

For short-term goals that you would like to achieve in the next couple of years, a cash savings account minimises risk. You could also consider money market funds, which are an effective way of holding a cash-like product inside an investment wrapper. 

Adopt a diversification strategy

You don’t need to hand-pick lots of individual investments to achieve diversification. Some collective investments, like funds, investment trusts, and ETFs, are designed to provide broad exposure by investing in a wide range of companies across different regions. 

Multi-asset funds own a mixture of shares and bonds. Therefore, such funds would be expected to give investors a smoother ride than equity funds that invest globally or in one particular region. This is because when share prices fall sharply over a short period, the defensive qualities of bonds are usually paramount.

Some providers also offer managed products such as ii’s Managed ISA, where your money is invested in a ready-made, diversified portfolio that suits different risk tolerances. 

Monitor market trends and conditions

Checking your investments regularly and keeping up to date with the market can help you manage risk.

If your investments aren’t performing as well as you hoped, consider why. Is the whole market struggling, or is it just your fund? Experts recommend reviewing your investments at least every six months, but reviewing riskier investments like stocks more frequently would be wise.

Ensure you stay tax-efficient

One way to make the most of your £50,000 is to invest in a tax-efficient way. Most platforms offer a choice of investment accounts. But bear in mind they each have different tax rules and contribution limits. Depending on how much you want to invest, you might need to spread your money across more than one account.
Each type of account usually offers access to the same range of investments. 

• ISA: These are tax-free accounts, meaning no tax will be deducted from returns or when you withdraw. You can access your money when you wish. Each year, you can invest £20,000 tax-free in an ISA.
• Managed ISA: Some providers, including ii, offer Managed ISAs where you get all the same perks as an ISA, but experts manage your investments for you. You can save time and leave it to the professionals while your portfolio is handled elsewhere and you work towards reaching your financial goals.  The same £20,000 a year ISA allowance applies. 
• SIPP: 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 on, you can make income and lump withdrawals as you need.
• Trading Account: This is a standard account – you can access your money anytime, but you may have to pay tax on your returns if you go above certain thresholds for capital gains tax, dividend income and interest income. It usually only makes sense to use a trading account once you’ve used your ISA allowance.

Invest in stocks and shares

When you invest your money in the stock market, it has the potential for more growth compared to leaving it in a savings account, although it comes with more risk. 

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 the earnings from your investments generate additional gains on top of your original investment. Essentially, your returns start earning returns. As a result, your wealth has the potential to grow at a much more significant rate. 

To maximise the power of compounding, you should:

• Leave your money invested for as long as possible to increase your opportunity for compounding to work.
• Reinvest dividends or any interest earned from your investments. By reinvesting instead of withdrawing these earnings, you can enhance your overall returns

You can also decide whether you want to be a passive or active investor in the stock market. 
A passive or hands-off investor avoids regularly making changes to their investments. If this sounds like something that would suit you, consider outsourcing decision-making to a professional who can do the hard work for you, such as the interactive investor Managed ISA. An active or hands-on investor will choose to make their own investment choices and spend more time managing their portfolio, including conducting regular reviews. 

The best way to invest your £50,000

Whether your goal is to grow wealth, generate passive income, or safeguard your £50,000 against inflation, choosing the right investment strategy is key. 

Each investor's 'best way' to invest looks different – what matters most is finding what works best for you, your goals and your attitude to risk. 

By exploring the options below, you can decide which assets align with your objectives and put your money to work:

Investment funds

• A fund is a type of pooled or collective investment where many investors put money in, and a fund manager decides which companies to invest in.
• This gives investors access to a spread of companies, with 40 to 60 held in a single fund being fairly typical. In turn, this spreads risk far and wide, rather than simply buying one or a handful of shares, which is higher risk.
• Funds invest across a range of different shares and/or other assets, such as bonds or property and are run by a professional manager in line with the fund's objectives. Most funds typically aim to deliver growth, income or a combination of the two. Some have targets, such as producing a certain level of income each year or aiming to outperform inflation over a specific period.

Investment trusts

• Investment trusts are, like funds, a type of pooled investment that invests in what is often referred to as a 'basket', or selection, of underlying assets such as equities, bonds or property.
• But, unlike funds, investment trusts are listed on the London Stock Exchange and have several structural differences, which investors can use to their advantage. Check out our guide to learn about how investment trusts differ from funds.

ETFs and index funds

• Another form of collective investment, exchange-traded funds (ETFs) and index funds, seek to replicate the performance of an index, commodity, or basket of assets. Many ETFs and index funds track long-established equity indices like the FTSE 100 or S&P 500.
• Much like individual stocks, ETFs can be traded daily on the stock market.
• On the other hand, index funds can only be bought and sold once a day, like funds. 

Shares

• Shares are direct holdings in individual companies listed on UK and overseas stock markets.
• Popular stock indices or sectors to consider when choosing shares include the S&P 500 and the FTSE 100. Pick a winner, and you could enjoy great returns, but it’s a higher-risk strategy and requires a lot of research.
• Buying shares involves more work and effort than if you had outsourced the investment decision-making process to a fund manager or bought an ETF.   

Bonds and fixed income investments

• 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. Corporate bonds are loans that companies take out.
• The buyer of the bond is effectively lending their money to a company for a fixed period. In contrast, government bonds (also called gilts) are loans the government takes out via financial markets. In this case, the buyer of the bond is effectively lending their money to a state for a fixed period.
• Investors can buy certain bonds directly on interactive investor, such as UK government bonds (known as gilts), or can opt for bond funds, which invest in a spread of different types of bonds – typically both government and corporate bonds.

Property

• The commercial property market is made up primarily of shops, industrial buildings such as warehouses, and offices.
• You can typically invest directly by buying a fund that holds actual physical property in its portfolio.
• The other option is property funds that invest in the shares of listed property companies. 

If you’re confused by the options, we have plenty of guidance to help you make more informed decisions and plenty of expert fund ideas. These include our Super 60 list of rated funds, Quick-start funds, and five ready-made portfolios.

Should I save or invest £50,000?

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

Any money you will likely need in the next five years – whether for a house deposit, to pay for building work or a big trip – should ideally be kept in a cash savings account. That's because you don't want to risk losing money before you need it.
Saving is low risk, as you won't lose any money. However, money left in a savings account is unlikely achieve the same returns as investing, and its spending power will be reduced by inflation.

8 tips for investing your £50,000

1. Diversify: Spreading your money across a broad range of holdings reduces risk. 
2. 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.
3. Watch out for charges: Funds managed by professionals typically cost 0.85% to 1% a year. On the other hand, index funds and ETFs usually cost less than 0.25% a year. 
4. If the fund outperforms, paying more will have paid off. However, if it does not deliver the goods, the higher fee will not give you value for money. Most funds ask for their performance to be judged over a minimum of five years.
5. 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. Remember, markets tend to recover over time. 
6. Don’t feel pressure to pick the perfect investment: The time you’re in the market and the spread of investments you hold are often more important than your fund choices. 
7. Drip-feed your money: Also known as regular investing, drip-feeding involves investing small amounts of money over time, which creates an averaging effect and reduces your risk of getting market timing wrong.
8. Choose investments with dividends: Dividend payers are usually robust, established companies, so this is a good option if you want to stay on the ‘safer’ side of investing. 

What other amounts could I invest?

Depending on your situation, goals, experience, and willingness to take on risk, you could invest more or less than £50,000.

If you’re starting out as an investor or new to managing risk and stock market volatility, you may benefit from investing sums like £5,000 or £10,000 to gain experience instead. Or if you have a higher risk tolerance and are looking for a larger return, starting at £20,000 or above might suit you. 

Using an investment account

History tells us that investing your £50,000 in the stock market will likely give you the best returns. The type of account you choose to invest with, will depend on your goals and circumstances. Luckily, most platforms offer various options, such as ISAs, SIPPs, or General Investment Accounts.

When choosing an investment platform, you’ll want to ensure any account fees you pay won’t erode your £50,000. For example, at ii, we offer various of flat-fee options, starting from just £4.99 a month, so your pot won’t be eroded by increasing percentage fees.