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What’s the best way to invest £10,000?

If you have £10,000 to invest, you’ve no shortage of options today. Stocks, investment funds, exchange-traded funds (ETFs), peer-to-peer loans, gold, and cryptocurrencies are just some of your options. So, what’s the best way to invest that money?

How to invest £10,000: The first steps

The first step is always to determine your financial goals, time horizon, and risk tolerance. This’ll help you work out which investments are best suited for you.

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Are you looking to generate capital growth over the long term? Or are you looking for passive income now? And how much risk are you willing to take on to achieve your goals? In the financial world, risk is directly related to reward. Would you be comfortable if the value of your portfolio fell by 20% in the short term? These are the kinds of questions to ask yourself.

Once you’ve thought about your financial goals and risk tolerance, you can then set about choosing the best investments for your £10,000.

The best investments for £10k

If your goal is to generate capital growth over the long term (the goal for many investors) and you’re happy to take on a reasonable level of risk to achieve this, investments funds, or ETFs that invest in shares, are your best bet for a £10,000 investment, in my opinion.

Funds and ETFs offer investors a number of advantages:

  • They enable you to build a diversified portfolio. Through one investment you can gain exposure to many different companies. This lowers your portfolio risk.

  • They save you money on trading commissions. If you were to buy 20 stocks instead of a fund, you’re looking at hundreds of pounds in trading commissions.

  • They’re generally very cost-effective (although some are more expensive than others, so it’s important to check fees).

  • They’re easy to buy and sell. You can invest in funds easily through online platforms, such as Hargreaves Lansdown. 

In terms of which funds or ETFs to invest in, I’d go for a selection of global equity products. These will give you exposure to leading companies listed all around the world.

Some examples of global equity funds include:

  • Fundsmith Equity

  • Lindsell Train Global Equity

Both of these funds have excellent track records and have more than doubled investors’ money over the last five years.

I’d recommend investing in a few different funds to spread your risk.

Once you’ve built your £10,000 up into a larger amount, you can then look at adding individual stocks to your portfolio in an effort to enhance your returns.

Individual stocks are riskier than funds, however they do offer the potential for higher returns. Just look at Boohoo. It’s turned a £2,000 investment into nearly £30,000 in just five years.

Two tips for investing £10k

Of course, there’s more to investing than just picking the best investments.

It’s important to protect your gains. You can do this by investing in a tax-efficient account, such as the Stocks and Shares ISA where all gains are tax-free. If you’re under 40 and investing for retirement (or your first property), you may also want to consider the Lifetime ISA. Through this ISA, you could potentially pocket an extra £1,000.

Finally, my advice is don’t invest the £10,000 all at once. Instead, drip-feed it into your investments over time. This will reduce the risk of losing money if the stock market falls in the near term.

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Edward Sheldon owns shares in Hargreaves Lansdown and Boohoo and has positions in the Fundsmith Equity fund and the Lindsell Train Global Equity fund. The Motley Fool UK has recommended boohoo group and Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.