£50,000 is a lot of money, so you need to handle it wisely.
It’s all too easy to fritter it away. A new car, a couple of holidays, a more carefree attitude to spending, and you will quickly make serious inroads into your windfall. So draw up a sensible plan for it, instead.
Get growing
£50,000 is a lot of money, but it isn’t a life-changing sum. It could be, though, if you invest it wisely. Say you are 35, and plan to stop working at 67. If you invest £50k in the stock market and it grows at 7% a year after charges, which is the long-term average growth on the FTSE 100, your £50,000 will turn into £435,764 in 32 years’ time.
That’s the transformative effect of investing for the long term. Just remember to reinvest all your dividends for growth, to turbo-charge your returns. Also, invest inside your annual tax-free Stocks and Shares ISA allowance, because that way all your income and capital gains are completely free of tax.
Spread your investments
The ISA allowance is currently £20,000 a year, so you cannot shelter all your windfall at once. However, you get a new ISA allowance on 6 April 2020, and another on 6 April 2021, so by then all of your money should be protected from HM Revenue & Customs.
£50,000 is a lot of money, so you probably do not want to invest it all in one go anyway, in case stock markets crash next day. It won’t hurt to spread your investments over the next couple of years.
Just remember that the real-terms spending power of £435,764 will have reduced over three decades, due to inflation, so it may not be enough to secure a comfortable retirement on its own. However, if you add it to the State Pension, and any workplace pensions you may have, you should be getting there.
Pay down your debts first
Now, if you are older, you won’t have 32 years for your money to grow. So your £50,000 may not be worth quite as much by the time you turn 67. But with even the best instant access Cash ISAs paying less than 1.5%, the stock market is the best place to generate a higher return.
If you are paying APRs of 20% or 30% on a credit card, store card, overdraft or other short-term credit, your priority must be to pay that down first. It’s also worth keeping some rainy day cash to cover three to six months of spending, in case of illness, redundancy or other financial emergencies.
Now we’re talking big money
The stock market works best for long-term savings, that you can put away for at least five to 10 years, and ideally longer, to help you overcome short-term volatility.
The next big question is where to invest. You could keep things really simple with a low-cost tracker fund such as the iShares Core FTSE 100, and get a globally diversified spread of stocks through the Vanguard FTSE All-World ETF. Alternatively, you could buy a selection of high-yielding FTSE 100 shares.
The Motley Fool is packed full of ideas. £50,000 is a lot of money, but handled correctly, it could be worth a lot, lot more.
