How do I invest £10,000?
Financial products
Posted by MoneyController on 13.10.2023
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An investment of £10,000 is a substantial sum that can be used to generate passive income or capital growth, or as a starting point for building a diversified portfolio and working towards long-term financial goals. However, you need to be able to clearly differentiate between financial products in terms of risk and minimum investment.
Before briefly reviewing investment options, it is worth remembering that any investment should be defined by at least three coordinates: 1) your financial goals, 2) the desired investment horizon, and 3) the level of risk you are willing to tolerate. In this respect, the use of a financial professional, such as a financial advisor, is almost indispensable if you want to build a well-diversified portfolio based on the three coordinates mentioned above.
Savings accounts and certificates of deposit are among the less risky investments. Savings accounts offer a modest annual interest rate - returns may be limited, especially in a period of low interest rates - but they are safe. Certificates of deposit are similar to savings accounts, but often offer higher interest rates in exchange for tying up your money for a fixed period of time, usually a few months to a few years.
Bonds are debt securities issued by governments or companies. They are generally less risky than shares and can offer regular income through interest payments. However, it is important to assess the financial strength of the issuer (to limit insolvency or counterparty risk). Mutual funds raise money from many investors and invest in a wide range of assets, including stocks, bonds and other financial instruments. They are managed by professionals and offer diversification. However, unlike investment trusts, bonds often have minimum denominations of well over £10,000.
Investing in shares means owning part of a company; shares can offer high returns but are also subject to market fluctuations. Again, diversification is essential to reduce risk. In this respect, equity mutual funds are an intermediate route between direct investment in equities and direct investment in bonds. However, as with bonds, the minimum investment for shares is often over £10,000, whereas fund shares can be more affordable.
Real estate investments include buying property, which is obviously not possible with a sum of £10,000, or investing in real estate funds. They can offer regular income streams and capital growth, but require a long-term commitment and proper management: one of their main risks is illiquidity. Alternative investments (private equity, private debt, etc.) are also characterised by a high risk of illiquidity. In addition, the minimum investment is often much higher than £10,000.
Cryptocurrencies (bitcoin, ethereum, tether, cardano, dogecoin, etc.) are highly speculative and extremely volatile. While some people have made huge profits, many others have suffered huge losses. If you invest £10,000 in cryptocurrencies, you could lose a large part of it.
Read also
Why does it make sense to diversify your investment portfolio?
What are bonds and how do they work?