Let’s say you got a bonus, or you’ve been saving awhile, and accumulated £10,000 in your account. How do you make the best return on that money?
Rarely would you want to leave it in a savings account, when assets like stocks can give you a much higher return, especially with inflation on the rise.
1. The 5 Year Rule for Invested Money
Don’t invest money unless you can afford to leave it invested for at least 5 years. This is true regardless if you’re investing £10,000, more, or less.
If you don’t feel comfortable living without access to those funds then now isn’t the right time to invest. Make sure you already have an emergency fund that has enough to support your living expenses for three to six months.
This doesn’t mean you cannot access your invested funds for five years. With most investments you can. But every market has some volatility that may experience dips and gains. Leaving it alone will give a chance to ride out any fluctuations and hopefully provide a higher average return.
Five years also gives your returns a chance to compound.
2. Investing Between Five and Ten Years
If you think you may want to easy access your money sometime during this period one of the best ways to invest would be stocks and shares ISA or crypto (either holding or staking).
You’ll be able to sell at high points of return and manage when to withdraw for the lowest tax fee.
3. Investing between Ten and Thirty Years
The best vehicle here is likely still stocks and shares ISA, crypto, or a small business venture that can be run passively or little time investment (think Airbnb for real estate or Turo for auto).
If you’ll turn 55 within 30 years, or you may want to hold the investment longer than 30 years a pension may be more beneficial for taxes.
4. Investing 30 or more years
Here the tax benefits of a pension put it in first place. Pensions come with tax relief from the government, increasing your return.
Plus, workers get free cash from employers if they are using a company pension scheme. Keep in minds that this will become money you can’t access until you’re 55, and that is rising to 57 in 2028.
If you’re self-employed, a self-invested personal pension is an option.
5. Follow the 60/40 Investing Principle
Many experts suggest a 60/40 mix when it comes to your portfolio. You want diversity. That’s 60% in equities (shares in a company, what most think of when talking stocks) and 40% in bonds.
You can further diversify by also investing in different sectors and countries.
For example, putting everything in tech or energy could hurt your return if one sector experienced a downturn versus having a mix. In the same way, investing in emerging markets like India, with the UK or US, adds diversity across sectors and markets.