Investing £100,000: at a glance
- What do I need to know? With £100,000 to invest, you can generate passive income through compound interest.
- What does it mean for me? A balanced investment and savings portfolio can let you take advantage of riskier but more rewarding strategies.
- Why does it matter? Growing your £100,000 investment could be the key to creating generational wealth or gifting a transformative amount to family.
£100,000 gives you the potential to start earning a significant passive income through a diverse portfolio and compound interest.
But how can you balance your portfolio to prioritise both growth and security?
In this guide, you’ll learn about the savings and investment options for your £100,000 sum, as well as what to consider before committing your money to any product or account.
What to consider when investing £100,000
Investing involves moving cash into savings accounts or financial products in the hope of getting more money back. But nothing is guaranteed.
And how you structure your money should reflect how much loss you’re willing to risk, as well as the control, access, and returns you’d like.
Investments vs. savings
Investments can generate high returns, but there’s also a risk you could lose money. That’s why you’ll likely need to adjust your portfolio over the years. Many investors accept slightly higher risk in the short term before moving more money into lower-risk options as they near retirement or want to access their cash.
Savings accounts are less risky, whichever way you structure your portfolio. And while you decide what to do with your money, or how to move it between investments, it can grow in value thanks to high-interest accounts.
With a significant sum like £100,000, you could grow your wealth through compound interest in instant access accounts. But if you leave it in one savings account, you’re not fully protected.
Accounts opened with UK banks approved by the Prudential Regulation Authority (PRA) come with Financial Services Compensation Scheme (FSCS) protection.
This covers your cash up to £85,000 if the financial institution goes out of business.
By spreading your sum across authorised accounts, you can protect your full deposit.
Other considerations
How you decide to invest £100,000 will likely depend on the balance of these factors:
- Access: If you’re happy to take a long-term approach, you could increase your earnings thanks to compound interest and potentially higher rates.
- Tax: Investing more could mean paying a higher proportion of tax, so you may wish to maximise tax-free savings.
- Wealth erosion: With some high-risk investments, you could lose your initial deposits, while bonds and savings accounts could see you lose purchasing power to inflation.
- Passive investing: This involves putting money into pre-determined packages of stocks, like index funds or ETFs. It can be considered lower risk than investing in individual stocks, as you cover the whole market.
- Active investing: Actively investing can be riskier as you’re often betting on the performance of a few stocks without the safety blanket of a wider fund. But it can come with higher returns if these stocks grow.
Working with a financial adviser can help you build an investment portfolio that reflects the level of risk you’re comfortable with.
Financial advisers can also discuss options for tax-free savings to minimise unnecessary costs. Tax rules are complex and change regularly, so it’s important to speak with qualified professionals if you’re unsure how you might be affected.
How to invest £100,000
It’s helpful to understand your options when investing to build a portfolio that reflects the level of risk, access, and growth you’re happy with. But a £100,000 investment might change how you manage your money.
ISAs
With £100,000, you could take advantage of the annual ISA (Individual Savings Account) deposit limit while still leaving plenty of cash to invest elsewhere.
Cash ISAs allow you to earn tax-free savings interest, even if you’re an additional-rate taxpayer. You can protect £20,000 of your money in an ISA every year.
Your allowance resets annually, so you could gradually build your tax-free savings interest over a handful of years if you wish.
Stocks & Shares ISAs
Stocks and Shares ISAs allow you to invest your money tax-free. But as with any investment in the stock market, you risk losing the money you put in.
Stocks and ETFs
Investing £100,000 in stocks or ETFs could allow you to diversify your money across different businesses, sectors, regions, and asset types. This strategy can reduce your risk as it’s less likely that everything will underperform at once.
Venture capital
Venture capital involves directly investing in a business or project in exchange for a stake. If the business grows in value, you can ‘exit’ your investment by selling your shares for a profit.
Investing £100,000 in venture capital could allow you to spread your money across different projects. You could invest more in a single project if you wish, but it’s usually a good idea to consult a financial adviser when considering riskier strategies.
Hedge funds
Hedge funds pool money from multiple investors and tend to prioritise more aggressive and complex trading strategies to try to grow your money. Depending on how the money is managed, hedge funds can come with significant risks, but also the potential for high returns.
Hedge funds are usually restricted to high-value investors. £100,000 could qualify you to put money into a hedge fund. But investing the full lump sum could see your wealth decrease dramatically if returns don’t materialise.
A financial adviser can explain the advantages and disadvantages of riskier investments like hedge funds and help you decide whether you’re comfortable with the risks.
Bonds
Like ISAs, bonds can add a level of predictability to a £100,000 portfolio. This is because bonds work similarly to a fixed-rate savings account.
You’re paid an agreed amount of interest over a set period of time, known as a ‘term’.
But inflation can reduce the purchasing power of the money you earn in a bond. This happens when the inflation rate is higher than the interest you’re getting paid.
Property
A £100,000 investment could cover a significant amount of a property’s value, meaning you’ll only pay very low monthly mortgage payments. This could allow you to make a profit by charging rent.
You could also indirectly invest in property with a significant stake in a REIT (Real Estate Investment Trust).
Peer-to-peer lending
Putting more money into peer-to-peer (P2P) lending could allow you to spread your investment across multiple borrowers. So, you could take advantage of high interest rates without risking your full investment if one borrower can’t repay.
P2P lending is not reliably protected by the FSCS. Most P2P platforms will also charge fees to use their services.
Ethical investments for £100,000
You might add ethical investments, like ethical banks or ESG investing to your portfolio if they align with your values.
These investments typically prioritise social or sustainable goals over making higher returns.
Long vs. short-term investment strategies for £100,000
Every investment has unique strengths and weaknesses. A balanced portfolio aims to maximise the benefits of each while protecting against risks.
Dividing your investments between short- and long-term options can give you greater control as you seek the perfect level of risk and access for you.
Short-term investments
Short-term investments typically last between one to five years, and might include high-interest cash and short-term bonds.
Investments in the short term usually provide more predictable returns, which can be helpful during times of uncertainty. But HMRC can consider regular returns outside of ISAs, like interest from savings and bonds, as income when you make more than your annual allowance. This means you could pay up to 45% in Income Tax on your earnings as an additional rate taxpayer.
Long-term investments
You could own long-term investments, like stocks or shares of an index fund, for ten years or more. Index funds tend to generate returns over a longer period, withstanding short-term market changes that could erode your wealth. Though as with all investments, there are no guarantees.
If you make a profit above an annual limit, you may need to pay Capital Gains Tax on the money you earn from the sale. How much you pay depends on the type of asset, and the level of Income Tax you pay.
Frequently asked questions about investing £100,000
How much interest will £100,000 earn in a year?
It depends on the type of investment and whether you opt for fixed returns.
Bonds and savings accounts typically offer a predictable return, which can help you calculate your earnings after one year. For example, if you locked in a 3.5% interest rate on a £100,000 deposit, you’d earn £3,500 - assuming the interest is paid annually and doesn’t compound monthly.
It’s more difficult to predict how much you could earn on other investments, like stocks.
What are the lowest risk investments for £100,000?
Bonds and savings accounts are often seen as the lowest risk investments to grow £100,000. They let you lock in predictable returns, and savings accounts with authorised UK banks provide Financial Services Compensation Scheme (FSCS) protection on your deposits.
While some other investments could provide higher returns, they also come with a greater risk of losing your money if your stocks or funds drop in value or borrowers can’t pay you back.
Protect and grow £100,000 with multiple high interest savings accounts
A £100,000 sum gives you plenty of options to invest and grow. And adding high-interest savings accounts to your portfolio can provide access and predictability alongside more uncertain investments.
Saving your money in multiple high-interest accounts lets you grow your money without limiting your options.
Fixed-rate savings accounts lock in high interest for a set period, while instant access accounts balance growth and access, allowing your cash to thrive rather than sitting idle in current accounts.
Invest your wealth with Flagstone
Access to exclusive rates from 60+ banks with Flagstone.
All in one place, with one login.
