If you have £20,000 to invest, then that’s great – it’s a large sum and it’s definitely worth looking at ways to make it work for you. But where do you start? And how do you invest it? Here are some smart ways to invest your money.
Consider investing in an ISA
If you haven’t used your full ISA allowance yet, you could max it out by putting your £20,000 in a Stocks and Shares ISA. Obviously, you don’t need to invest it all if you don’t want to. Every tax year, you can pay up to £20,000 in an ISA and you can either put it all in one ISA or split it between different types, like a Cash or Lifetime ISA. So, you could choose to invest some of your money in a Stocks and Shares and save the rest in a Cash ISA – it’s really up to you. Before you make any decisions, make sure you understand the differences between saving and investing. When you save, you’re guaranteed to get a return, however, over the long-term, the real value of your savings could go down due to low interest rates. With investing, there’s a risk you could end up with less than you initially put in, but since returns aren’t tied to any fixed interest rates, there’s also a chance for higher returns in the long run.
The advantage of paying into an ISA is that your returns are tax-free, meaning you get to keep more of your money. So, if you’ve got £20,000 to use, opening an ISA account could be a great option to build wealth. And the earlier you start paying into your ISA, the more time your money will have to potentially grow and benefit from the power of compounding – when you earn profit on any profits that have been re-invested.
Think about your retirement
Another thing you could do with £20,000 is build your retirement pot. You may think it’s a bit early to think about your later life, but if you want to take control of your retirement, it could pay off to start now. Remember, the earlier you start, the more potential your money will have! And if you’ve already started putting money aside for your later life, then adding an extra £20,000 to your pot could boost your future retirement income.
Now, the question is ‘where should you put this money’? Well, why not consider opening a personal pension? With a personal pension, not only can you choose how much you’re putting in, you will also receive at least 20% tax relief on every contribution you make – that’s £200 for every £800 you invest! And if you do the math, you’ll notice that £200 is 25% of £800, meaning you would effectively benefit from a 25% top-up on your contributions. One thing to note is that the amount you get tax relief on is limited to £40,000 (or 100% of your earnings, whichever is lower) – this is your pension annual allowance and it includes all the contributions made by you and the government.
It’s often assumed that pensions are complex, but they don’t need to be. Thanks to robo-investing platforms, like Wealthify, saving for retirement has never been easier. All you need to do is choose how much you want to put in – and you can start with just £50 upfront or per month. Our team of experts will then build your pension based on your chosen investment style and manage your Plan on an ongoing basis, making sure your money is working as hard as you do.
Invest ethically if you want to
Whether you want to put your money in an ISA, a personal pension, or both, you have the opportunity to do it ethically. With an Ethical ISA or Ethical Pension, you’ll be doing your bit for the future as you’ll get a Plan where harmful activities, such as tobacco and weapons, are excluded, and your money will be invested in companies that are committed to having a positive impact on the environment and society.
And the good news is that ethical investing can provide you with strong returns, just like other types of investments. For instance, between September 2013 and April 2021, the FTSE All Shares, which lists over 600 UK companies, returned 74.02%, whilst the FTSE4Good, its ethical equivalent, returned 78.37%1. This means, if you had £100 invested in each of these markets during this specific time period, there would have only been a 70-pence difference in what you might have gained.
Consider diversifying your portfolio
As mentioned above, investing can be a bit risky, however there are ways to mitigate this risk. Regardless of how you decide to invest your £20,000, one thing you could do to spread your risk is diversify your investment portfolio. By this, we mean investing in lots of different investments from various regions across the globe, that way poorly performing investments should be balanced out by others that are doing well, limiting potential losses.
Picking a large mix of investments can be time consuming, but the great news is that you don’t need to do it yourself if you don’t want to. You can diversify your portfolio by simply buying funds – they’re like hampers full of different investments selected by experts. And if you want to make your life even easier, you could use robo-investing platforms to do the hard work for you. At Wealthify, our highly experienced Investment Team will do the picking and select the right mix of funds to build your Plan based on your attitude to risk.
Try to think about the long-term
If you want to build wealth, then it’s typically a good idea to stick with your investments for a number of years. The longer you remain invested, the more likely you are to see positive returns. Take people who invested in the FTSE 100 between 1984 and 2020 for example. Those who held their investments for any 10-year period have had an 89% of making a gain – and this timeframe includes many market crashes, such as Black Monday in 1987 and the Global Financial Crisis in 2008-092.
Also, over the long-term, compounding can do wonders to your money. Deciding to invest for a few extra years could help your pot grow even bigger. Say, you decide to put your £20,000 in a Wealthify Stocks and Shares ISA and keep it invested for 15 years, you could end up with £33,0883. But hold onto your investment for an extra five years, and you could enjoy £40,046 – that’s almost £7,0004 more!
1: Data from Bloomberg
2: Data from Bloomberg
3: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £21,885. If markets perform better, your return could be £49,405. Values correct as of 12/03/21.
4: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £24,402. If markets perform better, your return could be £64,452. Values correct as of 12/03/21.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.