How to Invest £100,000

Are you looking to invest a large amount of money in the future? This guide covers the best way to invest £100k and the best investments available for this amount of money. 

Keeping large amounts of money (such as £100,000) in cash savings often isn’t the best return on investment. Inflation can erode the value of the money and you might choose to invest in an account with poor interest rates.

So what can you do with £100k and how risky are these options? This guide will help you understand how to invest a large sum of money and the best investments for £100,000.

Table of Contents

    Important note: The advice provided on this website is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.


    1. Determine your risk profile

    Step one is to determine your risk profile. Your risk profile establishes:

    • The returns you want to achieve
    • The level of risk you’re willing to take
    • Your investment goals
    • Your investment timeframe

    Risk profiles sometimes have names such as “growth”, “balanced” and “conservative”. Each profile determines how much of your investment portfolio might be invested in defensive, passive or growth investments. 

    Your asset allocation (the implementation of your investment strategy) is an extension of your risk profile and will determine how much of your investment portfolio is divided in shares, cash, bonds and/or property. 

    Risk appetite

    Your risk appetite is defined as the amount of risk you are comfortable taking with your investments. By setting investment goals and timeframes, you can determine your risk appetite and narrow down the type of assets to invest in.

    Your risk appetite is not a measurement of your personal attitude to risk. Instead, it considers your ability to tolerate risk in practice. This is why it’s often referred to as risk tolerance. This can be determined by:

    • Age
    • Relationship status (Main or sole earner?)
    • How much you can afford to financially lose
    • The importance of stability in your life
    • Homeownership
    • Line of work (Stability) and future prospects (How will your career advance?)
    • Your dependents (Children, parents, family members etc)
    • How well you could recover from financial loss and how long it would take
    • The probability of you inheriting large sums of money in the future
    • Any other expenses

    If you find yourself, as an investor, feeling anxious about the ups and downs of your portfolio, any returns that you gain on your investments might not be worth the stress that you feel. All investments have the potential to rise and fall unexpectedly, but some assets are riskier than others. 

    Assets such as stocks and shares are considered high-risk assets. Stocks or shares in emerging markets or foreign businesses can be classified as more risky assets. The reason that investors might consider them at all is that higher risk = potentially higher returns. This is similar to betting on a horse in a race that has odds of 19/1. There’s less chance of the horse winning, but you could win more money if it does. 

    Shares in established companies are considered less risky than other assets in this group. Other less risky assets include property investment, corporate bonds and government bonds. Learn more about the basics of investment types in this guide. 

    Financial advisers can take you through a questionnaire that determines your risk appetite. After this, you can decide how to construct your investment portfolio. This includes deciding the ratio of high-risk and low-risk assets. As this is where the most growth can come from, the majority of investment portfolios will include a percentage of high-risk assets. Your risk appetite will determine how big this percentage could be. 

    Example: If we compared a single-parent teacher with three children, living in rented accommodation to a single software engineer living in their own home; the latter might have a higher risk tolerance. This is regardless of whether or not either person considers themselves as a “risk-taker.”

    Capacity for loss

    Capacity loss is defined as how much an investor can afford to lose. It is important for investors to understand that the price of their assets can rise and fall at any given point. You only have to turn to the news to see how quickly stock markets can lose significant value in times of crisis.

    If you are ever forced to take your investment out when markets are low, there is a potential to lose a great deal financially. That’s why it’s important to create a portfolio mix of diverse asset types. 

    Maximum risk appetite + Capacity for loss = Your portfolio mix

    2. Determine your investment time frame

    It’s important to remember that investment is a long-term strategy. Before wondering “how to invest £100k,” you need to establish whether you are investing your money for:

    Income or Growth

    With certain assets, your investment might need to be tied up for a significant number of years before you begin to see your returns. This would be considered a growth-based investment. Investors who opt for these assets are looking to get a maximum return over a longer period of time. 

    Some investors might prefer an income-based strategy where they look for the best way to invest 100k with the quickest, profitable returns. This is where you invest a large sum, then make withdrawals at regular points throughout the year. Property investment can also be considered an income-based strategy, but you can earn significantly more due to the rent charged to tenants. 

    The longer you can save or be without your investments, the more time you are allowing your investment to compound as share prices rise. If you need a shorter investment timeframe, it may be worthwhile putting your money in a high-interest savings account.

    Definition of Compound: What happens when your money is making you money

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    3. Determine your investment goals

    It doesn’t matter if you’re wondering how to invest 100k or 10k, it is essential for investors to establish their investment goals.

    These goals should define what you are looking to achieve with your investment. In this case of what to do with 100k, these are the types of returns you expect to receive from investing £100,000. Establish whether you are investing £100k to generate income or growth then review your investment time frame.

    Once you have established this, write down your goals and divide them into:

    • Short-term (1-3 years)
    • Medium-term (4-6 years)
    • Long-term (7+ years)

    When you write down your investment goals, be as specific as possible. This will help you determine the kind of investments you will make and the results you could achieve.

    The primary aim of investment is to allow people to reach their financial goals – not always keeping an eye on the latest tech, beating the share market or buying high/selling low. Investment is about you, your goals and how to get there.

    How will growth or income-based investments affect my investment?

    So you have established whether you are investing £100k for growth and income. But how will this affect your investment strategy?

    Your decision directly affects the type of assets in your portfolio. When investing for growth, you learn to accept the ups and downs that can come with the type of assets you choose, as long as you reach your financial goals at the end of your investment time frame. This means you can choose more “volatile” assets, those that are more likely to rise and fall in value over short periods of time. 

    If you choose to invest for income, your aim is to have a predictable, regular amount of growth that you can “skim off the top” at periods throughout the year. This means that you will want to choose more stable assets that are less likely to experience sudden dips in value. 

    4. Assess The Investment Types Available

    Now that you have put all the groundwork in to determine your risk profile, investment time frame and goals, it’s time to pick the right investments for you. If you are unsure on what to do with £100k and the type of investments to make for the best return, we recommend to assess the different types of investments available.

    These are some of the most popular ways to invest £100,000. We have provided information on each, along with their potential returns and risk levels.

    Stocks

    Stocks are some of the most widely recognised investments out there. This means to invest your money in a share of an organisation that you estimate will increase in value over time. You can either do this yourself and select the stocks yourself, however, this would require significant knowledge in the stock market. You could also hire an investment manager to select the shares for you.

    Returns
    Stocks and shares have the potential to bring high returns. However, this is entirely dependent on the stocks you choose and the amount you invest.

    Whilst there are plenty of stories in recent years of new investors using information they found on Reddit to invest in stocks and triple their income, there are also plenty of investors who lose significant amounts of money by investing in the wrong stock
    Risks
    Stocks and shares are seen as the most risky of all asset classes. They are most prone to losing value due to economic changes and inflation.

    When you hear success stories from investors that invested in stocks and shares, they are usually individuals with a high risk appetite and capacity for loss (see 1. Determine Your Risk Profile). If you are not prepared for the significant worry or loss that could come with investing in stocks and shares, there are better ways for you to figure out how to invest 100k.

    If you choose to invest 100k in stocks and shares, you need to accept that you might make some large returns or significant losses. If you do not have a large capacity for loss, then there are definitely better investments for 100k for you to pick.

    Cash ISAs

    If you’re looking for the best way to invest 100k safely with minimal risk, your best bet is a cash ISA. Investing your money in a Lifetime ISA is a common strategy that people use to compound funds for their pension. 

    Returns
    The money you can make in a cash ISA is completely tax-free. The returns you make will be dependent on the type of cash ISA you select.

    The main benefit of investing your funds in an ISA is that you do not have to commit to a stocks investment or property and still gain return on your investment. Whilst the latter do offer higher returns, this makes ISAs a good option for investors with minimal capacity for loss
    Risks
    Aside from stocks and shares ISAs, most cash ISAs are glorified savings accounts, meaning you are not at a high risk of financial loss. This directly impacts the levels of returns you can see, as a level of risk is often necessary to make higher returns. 

    Some ISAs, like Lifetime ISAs, only allow you to access the money in your accounts when you retire or buy your first home. This means that you would not be able to take the money from a cash ISA as an emergency fund. 

    It’s worth noting that the maximum you can invest in a cash ISA is £20,000 annually – which might need to be spread across different accounts. If you have a low capacity for loss, investing in cash ISAs can be a worthwhile investment, but you won’t make the same level of returns as you might when investing in a property. 

    Property Investment

    If you’re wondering the best way to invest 100k, it is definitely worth considering property investment for a maximum return on investment. In order to help you establish how to invest 100k, let’s look at some of the most popular types of property investments, taking into account global trends and current state of industries

    Hotel Investment

    Due to the rising trend of staycations in a post-COVID economy, hotel investment in the UK is one of the most lucrative opportunities available in property investment this decade. In 2019, the number of tourists in the UK hit 40.9 million visitors and 290 billion nights in UK hotels.

    Have you ever tried to book a hotel room in the UK at the last minute? More than often, the hotels in the area you wish to visit are fully booked and demand higher rates than any other type of accommodation. According to JLL’s Hotel Investment Outlook 2020, the UK is expected to take centre stage in popularity of tourist destinations, especially for residents looking for local holidays – meaning that profitable gains could be made by savvy investors that take advantage of this trend. 

    You can learn more about the benefits, competition and potential risks of hotel investment in our in-depth guide on Buying and Investing in Hotel Rooms.

    Care Home

    Care home investment is one of the most rewarding types of property investment, ideal for investors looking to give back to their communities. Overall life expectancy is projected to increase significantly with over 22% of Western Europe’s population being over 65 years old by 2023. Similarly, spending on the global geriatric care market will also likely exceed $1.4 trillion by 2023. 

    News over the past year has shown us the impact that under-funded care homes can have on the most vulnerable in our society. Government reports state that the number of care home beds will need to double over the next quarter century to keep up with the demand. 

    Investing in care homes can help alleviate stress on the NHS. By supporting care homes to create more beds, less elderly people have to receive domiciliary care (care in their own homes). According to the Nuffield Trust, elderly people that receive care in their own homes are more likely to experience multiple admissions to A&E – resulting in increased strain on the NHS. 

    By investing in care homes, investors help them to be built quickly, efficiently and to a high standard. When the private sector can invest in care homes, amidst constrained public finances and austerity in the UK, it ensures that our increasing elderly population can receive premium care in a comfortable setting – as quickly as possible. 

    Learn more about the rewards, benefits and potential risks of care home investment in our in-depth Care Home Investment Guide.

    Student Accommodation 

    The pandemic and news on student rent strikes might not make the most appetising menu for student accommodation investment. However, it is important to remember that these are passing trends. Once lockdown restrictions ease and universities open for face-to-face learning, students will need accommodation to live in. We can also expect an increase in the number of students looking for accommodation once lockdown restrictions ease, as the 17-18 year olds who deferred their year will go back to university or for the first time. 

    Research by the Higher Education Policy Institute (HEPI) states that UK student numbers are set to grow by a further 500,000 by 2030. Year-on-year demand for accommodation is rising 30% faster than the number of beds that are being developed. 

    Though many first-year students live in halls of residence, research by the National Union of Students in 2019 uncovered that there is not enough space for all students to live in university-owned accommodation throughout their education. Over half of the student population (54%) rent purpose-built accommodation or houses from private landlords or estate agents.

    All this results in a significant demand on property development to build private student accommodation for all budgets. Find out more in our Honest Guide to Student Accommodation Investment in 2021

    Buy to Let

    Investing in a buy to let property is one of the best investments for £100,000. It’s a simple concept and allows investors to generate two types of return:

    1. Purchase a property
    2. Rent it out to tenants and make a regular monthly profit (the rent your tenants pay)
    3. When you think it’s time to resell, you gain an increased profit if the market has permitted the property to grow in value and you have kept the property in good condition
    Returns
    Buy to lets are ideal for investors looking to make a regular income from £100k, as you would gain the monthly rental payments from tenants.

    You could also gain a significant ROI from the sale of the property.

    Risks
    The risks associated with buy to let are attributed to the property market itself.

    Your investment could potentially be at risk if the property market was to crash in the location of your buy to let.

    If there was a low demand for rental properties in the area you choose to purchase a buy to let, you might not gain the monthly rental payments that you would like. 

    It is important to seek professional advice or research yourself on the best locations to invest 100k in order to have confidence in your property.
    To guarantee to make an income from your buy to let, you should opt for opportunities with minimum assured rental yields.

    Buy to Sell

    Unlike buy to let assets, buy to sell properties only offer one type of return: the money that you make once you sell the property.

    The concept of buy to sell is to purchase a property for an affordable price, renovate the property, and then sell the property for a larger amount. 

    Returns
    You have the potential to make high returns, providing you:

    Buy a property in a location that has the potential to grow in value
    Make all the appropriate renovations to the high standards before putting it on the market

    Risks
    The success of your investment entirely depends on your ability to complete the renovations to a high standard and choosing the right location which will appreciate in value.

    You have to also consider the materials, tools, equipment, manual labour and expertise you might need to call upon for the renovations, which could seriously eat into your 100k.

    There is considerably more work-load and involvement with this type of investment. Even if you don’t do the renovations yourself, you will have to be involved in the entire process to ensure that it all goes to plan.

    For investors looking for less stress, opt for “armchair investments” where investment managers do the legwork for you.

    5. Define your investment strategy

    Now that you have established your goals, time frame, risk appetite and assessed the different types of investments out there, it’s now time to define your investment strategy.

    There are a few investment strategies out there, the main ones include:

    Value investing

    Value investment strategies involve investing in assets that you believe are being traded at a significant discount of their actual value. Value investing requires a long investment time frame, plenty of research and patience to succeed. Assets in this strategy include buy to sell properties. 

    Growth investing

    Growth investment strategies are all about looking for the next big thing, such as emerging markets or technologies. By taking into consideration an asset’s value and potential to grow, investors can take advantage of rising trends before they happen. It could be argued that the investors of Uber and other tech companies had growth investment strategies. 

    Momentum investing

    Momentum, or trend following, investment strategies require investors to analyse patterns in markets to determine their investment decisions. 

    Different to growth investment strategies, investors need to look at stocks and assets with strong patterns of high returns, invest in them and sell when they peak in value. Knowledge of markets is essential here and it is important to recognise that these patterns might not come to fruition.

    As mentioned with all investments, external factors can cause anything that might be seen as reliable to plummet or soar in value. The recent news of investors using advice from Reddit to invest in Gamestop and shake up the industry is a case in point. 

    Active investing

    Active investment strategies require investors and/or their portfolio managers to monitor activity all day. By keeping a watchful eye on the market, you would look to buy and sell your assets when the time is right to outperform the market. This requires a significant amount of forecasting and research to be successful, hence why many investors will hire a portfolio manager.

    Passive investing

    Passive investment strategies require less buying and selling of assets, making them less risky than active investing. It includes assets such as funds or trusts that look to gain comparable returns to the market benchmarks, rather than trying to outperform the market.

    If you are unsure on what your investment strategy should be for the best way to invest 100k, we would recommend seeking the advice of a financial advisor and taking into account your risk appetite and capability for loss.

    6. Create your investment portfolio mix

    It is now time to decide on what investments to include in your portfolio. Diversification of your investments (not putting all of your eggs in one basket) is the best way to invest 100k, to mitigate and manage risk. This involves spreading your 100k between multiple individual investments in different asset classes, regions, industries and companies. 

    Picture your portfolio as a pie chart. Each slice of your portfolio pie will include different types of assets. As mentioned above, your risk profile will determine how big the slice that includes your high-risk assets will be. The rest of your pie slices will hold medium to low risk assets which can provide more stable growth and stability. 

    7. Rebalance your portfolio on a regular basis 

    You might think that after selecting your investments that the work is done. You were wrong! Many new investors tend to overlook the importance of rebalancing their portfolios to stay in line with their risk profile. Because assets can stagnate or grow, you will find that your investment portfolio sometimes misaligns with your risk profile, making it vital to review on a regular basis. 

    See below for an example breakdown of how this works when establishing how to invest 100k:

    • Let’s say your investment portfolio is 20% shares (high risk), 40% property developments and 40% bonds (low to moderate risk) – a 20:80 ratio of high/low risk assets 
    • The shares increase in value after a few years, meaning that the value of your portfolio becomes 30% shares (high risk) versus 70% property and bonds (low to moderate risk)
    • This now means that more of your 100k is in high risk assets. If your risk profile has not changed, then it is advised to move some of the shares growth into a new property development and/or bonds to achieve a 20:80 balance again
    • As you get older and your risk profile changes, it is beneficial to rebalance your portfolio again to ensure that it aligns with your risk appetite

    Summary of the best ways to invest £100k

    Want to learn the best way to invest 100k but no chance that you’re going to read this whole guide? We have you covered with a summary on how to invest 100k:

    1. Establish how much risk you’re willing to take and your capacity for loss
    2. Determine your investment time frame (short or long term?) 
    3. Set your investment goals (income or growth?)
    4. Assess the investment types available to you and which align with the preliminary information in steps 1-3
    5. Define your investment strategy in line with your risk profile, time frame and goals
    6. Create your investment portfolio mix, dependent on your risk profile, investment time frame and goals
    7. Rebalance your investment portfolio on a regular basis to ensure it stays in line with your risk portfolio

    How to invest 100k with Sterling Woodrow

    If you’re still wondering what is the best way to invest 100k, it is important to remember that the best returns are likely to be over a longer period of time – between 5, 10 or even 15 years. Though this would be a growth-based investment, as opposed to investing for income, long-term investments are traditionally less volatile and can provide advantageous returns. 

    By sticking with an investment for a few years, this allows you to ride out any market dips in value, benefit from your investment compounding and ultimately pay less in trading fees. The best way to invest 100k is to allow your investment the maximum time and opportunity to flourish.

    Looking to add property into your portfolio? We have plenty of property investment opportunities available in a wide range of locations across the country. Whether you’re looking at hotel room investments to take advantage of their rising popularity and engage in momentum investing, or something as easy as a student accommodation unit that can make you money over time, our senior portfolio managers will be able to advise on the best investments for you.

    Are you ready to take the next step?

    To learn more about the property investment opportunities available through Sterling Woodrow, contact us today.