Investing a large amount of money is never easy as there are a number of issues to consider. The first thing you need to think about is your financial goal. What are you investing for and how long is your investment horizon? Secondly, you need to consider your risk tolerance. Are you comfortable with your money fluctuating in value, or are you looking for more stability?
Personally, I’m a long-term investor who’s focused on building up a sizeable retirement pot. My investment horizon is 20 years-plus, and I’m comfortable taking risks as I understand risk and reward are directly related. With that in mind, here’s a look at how I’d invest £10,000 today.
Tax-efficient account
Before thinking about what assets to invest in, I’d give some thought as to the best investment account for my situation. There are a number of tax-efficient accounts that could protect my £10K from the taxman.
The three main options I’d consider would be:
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A Stocks & Shares ISA: in this account all capital gains and income generated within it are tax-free. The annual allowance is £20,000 and money can be accessed at any time.
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A Lifetime ISA: all capital gains and income are tax-free and contributions come with 25% bonuses from the government. The annual allowance is £4,000. Money can’t be accessed until age 60.
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A Self-Invested Personal Pension (SIPP): all capital gains and income are tax-free and contributions come with tax relief. Money can’t be accessed until age 55 and then only 25% can be withdrawn tax-free.
Asset mix
Once I’d chosen an account, I’d look at assets. For a long-term £10K investment, I’d invest in the stock market, as stocks tend to generate higher returns than other assets, such as cash savings, over the long run. I’d do this through a mix of investment funds, as this would cut down on brokerage fees and provide me with a fully diversified portfolio.
In terms of asset allocation, I’d aim to invest around a third of the portfolio in the UK and the rest internationally as I believe there are more opportunities abroad. I’d also split the capital over a mix of large-cap dividend stocks, growth stocks, and small-cap stocks.
Here’s an example of how I might invest 10K through funds today:
Fundsmith Equity – 20%
Lindsell Train Global Equity – 20%
Franklin UK Rising Dividends – 20%
Threadneedle European Select – 20%
Polar Capital Global Technology – 10%
Marlborough Nano-cap Growth – 10%
All of these funds have good long-term performance track records and are available through Hargreaves Lansdown. Most have very reasonable fees.
Overall, these funds would provide me with exposure to:
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A range of high-quality large-cap stocks listed in the UK i.e. Unilever, Diageo
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Some fantastic companies listed in the US and Europe i.e. Walt Disney, Adidas, Pernod-Ricard
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The fast-growing technology sector i.e. Apple, Microsoft
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High-growth UK small-caps i.e. Impax Asset Management, Alpha FX
I would expect returns of around 8-10% per year on average over the long run.
Timing
Finally, I’ll point out that I wouldn’t invest the whole £10k at once. With markets at risk of a pullback due to slowing global growth, I’d look to drip-feed my money into these funds over a period of a year or so. That way, if global stock markets were to decline significantly in the coming months, I’d be able to take advantage of lower stock prices.
