£50k in savings? Here’s how I’d aim to turn it into £250k

Having £50,000 in savings is a great thing. This kind of money can provide a sense of financial security and give more options in life.

Of course, invested properly, this money could grow into a much larger sum. With that in mind, here’s how I’d aim to turn £50k into £250k.

The first steps

The first thing I’d do, if I was looking to grow my money by investing it, would be to decide how much I’d actually want to invest.

Naturally, I’d want to keep some cash set aside for emergencies. This way, I wouldn’t be forced to sell my investments if I needed access to the money.

I might put £10k into an easy-access savings account for emergencies and look to invest the remaining £40k.

The right investment account

Next, I’d open a tax-efficient investment account. By minimising the tax payable on my investments, I could get to my £250k goal faster.

One investment vehicle I’d certainly use is a Stocks and Shares ISA. With these accounts, all investment gains and income are tax-free.

There is a £20,000 annual allowance here. But I could be sneaky and open one for my wife too. This way, we could invest the entire £40k tax-free.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Putting my money to work

Once my money was in a tax-efficient account, I’d set about putting it to work.

Now there are many asset classes to invest in today. However, I’d focus on stocks (shares).

Stocks are higher-risk assets because they can be volatile in the short term. However, over the long term, they tend to provide attractive returns (around 7-10% a year, on average).

The thing is though, to achieve these kinds of returns from shares, investors need to build a proper well-diversified portfolio.

If an investor only buys three or four stocks, for example, there’s a good chance their results will be sub-optimal. One or two of these shares could underperform, dragging down the whole portfolio.

So what I’d do is start by investing in some funds to build a solid foundation for my money. These provide diversified exposure to the stock market at a relatively low cost.

I’d use a mix of passive tracker funds such as the Vanguard FTSE Global All Cap Index and active funds like Fundsmith Equity.

Then, once I had a solid foundation in place, I’d look to allocate capital to individual stocks that have the potential to beat the market in an effort to boost my returns.

By doing this, I might be able to reach my goal in less time.

For example, if I was able to identify, and invest in, a winner such as tech giant Microsoft (which has turned a $5k investment into more than $16k over the last five years), I could potentially turbocharge my returns.

How long would I need?

How long would this take me to hit the £250k mark?

Well, assuming that I was able to achieve a return of 8.5% per year on average (and there’s no guarantee I would), I calculate that my £40k investment would grow to £250k in around 23 years.

However, if I was to add to my investment on a regular basis, I could reduce this time significantly. For instance, if I was to add in another £5k a year, I could hit my goal in just 14 years.