If you’re in possession of £100k or so and wondering where to invest it, my guess is that you’ve come into the money suddenly.
If that’s the case, I think my colleague Harvey Jones’s advice is good. He suggested in a recent article that the money would be best put in the bank while you have a good think about what to do with it.
The feel-good investment
Years ago, I used to fantasise about what I’d do if I suddenly came into a sizeable amount of money. And in my dreams that was always going to be my first step too. It would give me an opportunity to calm down, do my research and then take a measured approach to investing.
Then, one day, after selling a business I’d built up, I did receive a big chunk of money. The majority of it went in the bank, but I did pay off my mortgage. For sheer feel-good appeal, paying off the mortgage has been a super investment and I’ve been enjoying the experience of being mortgage- and rent-free in the years since.
And when you live without the encumbrance of a mortgage or a rental bill, every pound you earn packs a much bigger punch. You’ll probably be amazed how far your money goes and how quickly your savings grow!
At the time, I’d considered off-set bank accounts that use the interest you earn on a cash balance to neutralise the interest you pay on a mortgage, but in the end, I went for the clean break.
The superior asset class
With the rest of my windfall, I wanted to invest in shares and share-backed investments because research has revealed that shares have outperformed all other major classes of assets over the long haul. But my experience was slight. I’d made regular payments into personal pension schemes and watched their progress closely over the years. And I’d participated in several privatisation share offerings in the 1980s and 1990s. But that was all.
The personal pension schemes put your money into funds managed by professional investors. So the yearly statements showed ups and downs, and my privatisation shares also bounced around. However, over several years, all those investments generally went higher, which encouraged me.
I invested the rest of the money gradually. I think it would be a mistake to go all-in with the full amount for two reasons. The first is that you could end up timing the market poorly. If stocks crash after you’ve invested the lot, you could spend years digging yourself out of the hole. The second reason for dripping money into investments slowly is that you’ll be giving yourself room to learn about investing and time to gain some experience.
My first self-directed investment was into a FTSE 100 tracker fund. But these days, I’d expand my passive investing horizons and drip money into trackers following the FTSE 250, S&P 500 and others. Then, one day, after plenty of research, I might venture into a few individual shares, but only if they are backed by good-quality businesses and trading at valuations that make sense.
