To get just a 1.25% fixed interest rate on your money in today’s climate you’ve got to tie up your money for five years.
Super thanks Shawbrook bank for that killer savings account… a cool £125 per year right in you back pocket.
For obvious reasons that’s just not an option so what is the best way to invest £10,000 right now?
Here’s exactly what I’d do and some things to think about before you decide where to put your money.
How I’d Invest £10k In The UK Today
Unlike many other pages on the web about the best way to invest £10,000 I’m going to actually tell you exactly what I’d do.
I won’t be just giving you a list of considerations and leaving you with more decisions at the end of it.
…and the best part is it’s only three easy steps away.
Step One: You Need An ISA
There is absolutely no question that the £10,000 I have to invest would be going inside an ISA (Individual Savings Accounts).
Quite simply because any interest you earn on your investment is tax free when inside an ISA. There’s absolutely no point in paying tax on your profits if you don’t have to.
You can contribute up to £20,000 a year into your ISA every year so getting £10k invested tax free won’t be a problem.
Note: many investors don’t realise that you can hold stocks and shares inside an ISA. It’s not just a savings account with a fixed return and that’s important because fixed returns are shockingly poor right now.
Step Two: Open Your ISA
It’s a lot easier than people think to open an ISA.
Gone are the days of having to arrange a face to face meeting at the bank or sit down with an IFA and fill out reams of paperwork to get an account opened.
You can do it all online with a number of different providers (Fidelity, Barclays, AJ Bell, Freetrade to name but a few) but my go to platform is Interactive Investor.
I personally use Interactive Investor, alongside a few other platforms, for my online investing. I have six figures invested via their platform and have been happy with the level of service.
I use their platform because their flat fee structure means over time I’ll pay less in fees on my investments (as illustrated by the below graphic) and I find their platform easy to use.
Step Three: Actually Making The Investment
After a little leg work I’ve got my Interactive Investor account open and I’ve loaded my £10,000 onto their platform.
The cash is now officially inside an ISA but it’s not yet invested. The big question now is what to buy?
The answer is simple… Vanguard LifeStrategy and here’s why:
- Vanguard LifeStrategy combines a number of index funds to give you exposure to the stock and bond markets in about the lowest possible fee paying environment (low fees are incredibly important to maximising your returns – see index vs managed portfolios for why.)
- You can adjust the ratio of stocks to bonds to suit your risk profile owning 20%, 40%, 60%, 80% or 100% in shares vs bonds. The higher your share percentage the higher your perceived risk with 20% considered lower risk lower reward and 100% higher risk highest reward.
- It’s a set and forget investment so it combines the easy of holding a managed portfolio with the low fees offered by index funds. Once you’ve bought it you can simply keep investing more into it without worrying about rebalancing or diversifying your investment (which is important because if you’ve done well enough to save £10k to invest you’re probably working hard and your time is precious).
Personally I’d be buying the 80% shares 20% bonds LifeStrategy mix because I’m young, ambitious and can cope with my investments going up and down over the short term.
A word on fees:
You can use my handy Investment Fee Calculator to see how much fees will actually cost you.
Go and input a £10k investment, 0% initial charge, 1% annual charge, £0 monthly contributions, a term of 10 years and an annual return of 6% and then do the same but with a 3% annual charge.
You’ll see that it’s £1,258 vs £3,439 in fees for the lower annual charge. Lower charges mean more actual money in your pocket.
Vanguard LifeStrategy has an annual charge of 0.22%.
Other Considerations: What Should You Do?
So I’ve given you a clear outline of how to invest £10,000 according to me but there are some things you should consider before taking the plunge:
Appetite to risk: consider how you’d feel if your investment went down and what the impact would be. If you’re earning a good salary and can invest for the long term then you might want to consider a higher allocation of shares to bonds. If you’re on a low income and the £10,000 is very important to you then might prefer to air on the side of caution.
Age: the younger you are the more time you have to ride out slow or falling markets in the short term. As you get older you might want less exposure to the market (choosing more bonds over stocks) to avoid big dips. In the current climate less stock allocation means lower returns so it’s a trade off.
Timeline: the longer you’ll be able to keep the investment in the market the more risk you can tolerate. Just because you’re young doesn’t mean you should go crazy if this money is earmarked for a house deposit or big purchase in the next few years.
The above are all situation dependant and personal preference for the most part.
For what it’s worth I can tolerate a high degree of risk inside my investments because my earning potential is still strong and I’m still relatively young.