How to Invest £100k in the UK | 5 Best Ways

While £100k is a wishful sum for many, once you obtain it, it’s best to use its potential as a solid base for earning additional income and establishing long-term financial stability. In this guide, you will discover how to invest £100k, the pros and cons of each approach, the things you’ll want to consider before investing, and additional saving methods for a comfortable retirement.

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What kind of investor are you?

You can opt for several approaches to investing, depending on your personal preferences and financial objectives. Consider these three guiding questions:

• What is my investing goal? Before investing in your first financial asset, you must define your investing goal. Do you want to increase the sum to buy a house in the country? Perhaps you prefer to use it for a comfortable early retirement? Your investing goals define your investing strategies and whether you should pursue short-term or long-term benefits. 
• What is my risk tolerance? Granted, £100k is a lot of money to risk. However, the gains from it have a lot of potential as well, as higher risk implies higher rewards. How much you are willing to risk is vital to devising the right investing strategy. 
• How much do I want to be involved? Some approaches require you to put in more effort than others. If you opt for an active investing approach, you will likely have to spend substantial time pursuing intensive trading. If this is not your cup of tea, consider passive investing as an alternative. Both of these are valid in the long run, but less experienced investors may find passive investing to be a more comfortable pick. After all, the market is a volatile place, even for veteran investors.

Your decision on investing strategy will depend on your financial goals, personal preference, age, risk tolerance, and the time you are willing to wait for the results. Naturally, these factors change over time, so it is beneficial for you to reevaluate your investing profile occasionally.

Best ways to invest £100k in the UK

The best way to use £100k is to invest. If you choose the right financial instrument (or combination of financial instruments), the prospect of greater returns or a comfortably large savings account is attainable.

There is no one-size-fits-all solution: how you reach your goals is ultimately up to you, so it’s best to compare your needs with what suits your investing profile best.

In the following paragraphs, we will cover the best ways to invest £100k in the UK:

1. Stock market;
2. Index funds and ETFs;
3. Real estate — REITs;
4. Retirement — fixed-income;
5. Retirement — self-invested personal pension (SIPP).

Let us explore them further.

1. Stock market

In this section: How to invest £100k in the stock market in the UK?

Investment type: Long-term growth

Risk level: Varies

Recommended broker: eToro

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Investing in stocks is a viable long-term approach to increasing the value of your initial funds. Stocks do not guarantee a positive return, however, and the level of risk depends on the volatility and performance of the stocks you choose to buy. Reaching a desirable outcome depends on investors maintaining their thought-out trajectory with patience, as it is easy to fall prey to emotions and make the wrong choices. The returns will be different each year, sometimes even resulting in a loss, but with enough time and a steady course, the average returns will yield substantial profits.

For example, the well-known S&P 500 index, a popular stock market investment, experienced returns of +26.89% in 2021, followed by a failure of -19.44% the following year. While such drastic shifts in price indicate extreme volatility, the average annual returns of the S&P 500 amount to 10.21% per year since it was introduced in 1957. If you invested £100,000 in the S&P 500 in 2013, you would now have about £340,000 at the end of 2023.

If you are willing to invest some of your £100k in the stock market, you need to select a company (or companies) the shares of which you want to buy. What you want to invest in depends on the type and sector of industry and the previous performance of their stocks. 

Once you narrow down your choice, you should look for an exchange platform via which you will conclude the transaction. Our recommendation is eToro, as a platform of choice for millions of investors. With an account, you can begin to invest in stocks.

Pros and cons of investing in the stock market

Pros

• High returns: The stock market has a larger potential for greater returns on average than what is considered to be traditional assets such as bonds;
• Liquidity: Stocks are a highly liquid asset, which means that investors can quickly buy and sell them, resulting in an easier process of conversion into cash;
• Low barrier of entry: You are not required to invest a large bunk of your £100k in the stock market as commission-free trading and accounts with no minimums are the industry standard – you can start investing in stocks with as little as several pounds;
• Build long-term wealth: Stocks can create reliable returns in the long run, multiplying your initial investment over a prolonged period if you are patient enough. In a well-thought-out portfolio that is stable and diversified, investors are at the very least expected to stay ahead of inflation.

Cons

• Returns are not guaranteed: As with all investments, stocks are not guaranteed to provide a return. While it is true that stocks perform better than most other financial instruments, they also remain vulnerable to periods of economic stagnation and recession. Your investments are certainly susceptible to loss;
• No short-term gains: Gaming the market is not a reliable strategy with stocks. Significant returns take years or even decades to come to fruition;
• Volatility: Prices of stocks constantly surge and plunge. If you decide to invest in stocks, be mentally prepared for emotional rollercoasters, as resisting impulsive decisions is crucial to a long-term strategy.
• Time and effort investment: Investing in the stock market is a form of active investment which requires time and effort. Individual stocks and indices you create yourself require monitoring and management. This implies performing fundamental and technical analysis, checking companies’ performance, and observing the global state of the market. This adds up to a significant time and effort investment.

2. Index funds and ETFs

In this section: How to invest £100k in index funds and ETFs in the UK?

Investment type: Long-term growth

Risk level: Varies

Recommended broker: eToro

Best for:

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Finbold is compensated if you access certain of the products or services offered by eToro USA LLC and/or eToro USA Securities Inc. Any testimonials contained in this communication may not be representative of the experience of other eToro customers and such testimonials are not guarantees of future performance or success.

As a prominent example of passive investing, index funds, and ETFs represent financial assets that investors hold in diversified portfolios to grow over time with minimal interaction required.

The greatest portion of investors in index funds employs a buy-and-hold strategy, which is a long-term investment. Similarly, investing in exchange-traded funds (ETFs) or mutual funds is a holding strategy by which your investment mirrors the market performance and stands as a benchmark to investing conditions in general.

With these approaches, traders do not compete with the rest of the market but benefit from its overall performance and the global status of the economy. 

In the UK, the most popular and tracked indexes are:

• FTSE 100 – the 100 largest UK companies;
• FTSE 250 – from 101st to 350th largest UK company in the UK (also known as “mid-caps”);
• FTSE 350 – every UK company from the 1st to 350th largest;
• FTSE SmallCap – smaller UK companies not listed in the FTSE 350.

You might also consider investing in the three most broadly tracked indexes in the US, which are:

• The S&P 500;
• Dow Jones Industrial Average;
• Nasdaq Composite.

Pros and cons of investing in index funds and ETFs in the UK

Pros

• Diversification: Putting your investment in various companies from different sectors and industries helps you mitigate risk and limit the potential loss in case of crashes;
• Low fees: As investing in index funds and ETFs is a passive approach, there are significantly fewer transactions involved, reducing costs and fees when compared to actively managed mutual funds;
• Easy access: Venturing into the stock market via online brokerages like eToro is easy and inexpensive, which is especially suitable for new members of the trading community;
• Liquidity: ETFs and mutual funds are quickly bought or converted into cash, which means that traders have less delay in their transactions;
• Transparency: Index funds and ETFs are publicly traded assets, which means that regular performance reports of companies in index funds can be easily found upon inquiry;
• Convenience: It is much easier to invest in an index fund than in individual stocks of various companies, with significant saves in both time and money;
• Simplicity: The passive approach to investing with index funds and ETFs means that investors will not be exposed to emotional shocks due to the rises and falls of individual companies. Furthermore, instead of monitoring each company, you only need to monitor one index.

Cons

• Limited control: When you invest in index funds and ETFs, you have no control over which individual companies you invest in;
• Volatility: How index funds perform is tied to their benchmark indexes. In case of a plunge in the market, the index funds will likely follow suit;
• Slow gains: The buy-and-hold strategy brings its returns in the long run, but it is a slow approach with limitations on the amounts you can obtain from your initial investment. The downside of low risk is lower returns. 

3. Real estate (REITs)

In this section: How to invest £100k in real estate in the UK?

Investment type: Long-term growth, diversification

Risk Level: Medium

Recommended broker: Interactive Brokers

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Every investor is somewhat familiar with investing in real estate as it is one of the most commonly recognized and popular ways of investing. Despite the historical peak in property prices as of May 2023, investors flock around them still, and your £100k might find a suitable target in the real estate property. If you are unwilling to pour in the whole amount, you can consider investing in real estate indirectly through REITs. 

REIT is short for ‘real estate investment trust’, which are companies that manage, hold, or fund real estate with capabilities to create income. Many different sectors include such property. Eager investors can publicly trade REITs through brokerage platforms, which provide high liquidity and make these trusts sought assets.

Pros and cons of investing in UK real estate through REITs

Pros

• High dividend yield: REITs are required by law to share at least 90% of income liable to taxation as dividends to their shareholders. These dividend yields are among the highest you can obtain on the market;
• Diversification: Having a portion of your portfolio in REITs diversifies your assets without the need to devote much time or effort to maintaining them;
• Liquidity: Unlike actual, physical real estate, REITS are publicly listed on stock exchanges, allowing for a quick purchase whether you’re selling or buying;
• Solid returns: REITs have the potential to provide hefty sums in returns, going beyond the returns of the S&P 500 and staying way above the inflation margin;
• Exposure to the real estate market: REITs allow investors to enter the real estate market and enjoy the perks of value appreciation and rental income without having to own or manage properties directly.

Cons

• Slow growth: The downside of 90% of REITs income going into dividend payout is that only about 10% gets reinvested into growth. This severely hinders further expansion;
• Interest rate sensitivity: The main modes of expansion for REITs are raising external debt and equity capital. Surging interest rates increase the cost of debt and hinder profitable growth, which in turn brings down both profits and dividends;
• Sector concentration risk: If a REIT contains assets from a single property sector, for example, tourism, it is highly susceptible to events that disrupt the value of that type of sector. These are usually followed by widespread failures, such as in the case of COVID-19;
• Tax-eligibility: REIT dividends are susceptible to taxes as regular income.

4. Retirement – fixed-income investments

In this section: How to invest £100k for retirement in the UK?

Investment type: Conservative investing, retirement

Risk level: Low

Fixed-income investments are debt securities that provide stable, fixed, or predictable returns over an agreed period. The usual way for investors is to lend money to a government or a regulated company and in exchange get a source of interest returns. At the end of the agreement, the principal is returned.

Some common types of fixed-income investments in the UK include:

• Gilts (gilt-edged security): Gilts are government liabilities denominated in sterling. Given by the HM Treasury and listed on the London Stock Exchange, guilts produce a fixed income (known as a coupon) every half a year. The final coupon gets returned with the principal at maturity. The HM Treasury has zero instances of failing to fulfill gilts, so they are safe.
• Inflation-linked bonds: These bonds are indexed to inflation, so the final yield will never have a lower real value than the value of the principal. 
• Certificates of Deposit (CDs): CDs are usually bank- or credit union-offered, with a maturity period between one month and five years. The advantages of CDs include minimal administrative costs, as well as a greater interest rate than the same investment in savings. The Financial Services Compensation Scheme guarantees these deposits. 

At first glance, yields from fixed-income investments pale in comparison with the potential returns of stocks or ETFs, but the risks involved with fixed-income investments are significantly lower, sometimes going down to zero due to government guarantees. Also, as the income is constant and stable, fixed-income investments go hand-in-hand with early retirements and conservative investments.

Pros and cons of fixed-income investments in the UK

Pros

• Stability: Fixed-income investments have higher stability and provide a more reliable option for risk-wary investors, especially in comparison to equities;
• Predictability: With near-guaranteed or fully-guaranteed outcomes and constant streams of revenue, fixed-income investments offer regular income payments;
• Diversification: These investments are suitable for diversifying your portfolio by reducing overall risk to your assets; 
• Safety of initial investment: The only case in which the investors can lose the money is by withdrawing early or selling their contract to a third party. In all other cases, the chances of losing the principal are close to zero.

Cons

• Low returns: Due to negligible risk, fixed-income investments have significantly lower yields than, e.g., stocks, sometimes even failing to keep up with inflation;
• Hypersensitivity to interest rates: In cases of rising interest rates, already active fixed-rate bonds produce much less than bonds soon to be issued;
• Inflation risk: In some cases, inflation can decrease or even completely negate the value of future income payments;
• Limited growth: No risk means lower returns potential, so fixed income provides much less growth than, e.g., the stock market. Including fixed income in your portfolio may reduce the potential for your long-term growth.

5. Retirement – self-invested personal pension (SIPP)

In this section: How to invest £100k for retirement in the UK?

Investment type: Long-term growth, retirement

Risk Level: Low

An SIPP, or a self-invested personal pension, is a retirement savings account with lowered taxes for people in the UK with no other retirement options, or less favorable retirement options. SIPP supports investing in multiple financial assets, such as bonds, stocks, ETFs, and mutual funds, among others.

For all UK taxpayers, as long as the sum of the pension contribution does not exceed £40,000 per year, the pension contribution is tax-free. This relief comes in the form of a refund that gets contributed toward the pension.

For example, if you pay the 20% rate and deposit £40,000 to your SIPP account in one year, you are entitled to an £8,000 reclaim from the HM Revenue and Customs, which gets deposited back to your SIPP account.

Pros and cons of investing in SIPPs in the UK

Pros

• Tax benefits: Essentially, you pay less on taxes on the SIPP assets below the £40,000 threshold;
• Retirement savings: SIPPs are made with retirement savings in mind and represent a simple way to save for retirement in the long run;
• Investment flexibility: SIPPs’ investment options are numerous, and include bonds, stocks, mutual funds, ETFs, along with other financial instruments. You can easily diversify your portfolio with them.

Cons

• Contribution limits: SIPPs have a fixed annual contribution limit of £40,000;
• Penalties for early withdrawals: Early withdrawals from SIPPs before age 55 are either not possible or incur a penalty and taxes on the withdrawn amount;
• Tax withdrawal limitations: You are eligible for tax-free withdrawals only with the first 25% of your funds, regardless of whether you withdraw a lump sum or partially each month/year.

How to safely invest £100k — things to consider

If you have a sum of £100k on your hands, you either have much luck or many years of hard labor behind you. In any case, before you decide to invest the sum, there are a couple of things that you should check beforehand to prevent some disastrous outcomes in advance. Do these two checks: 

• Make sure you have no high-interest debt: Before committing to any investment, ensure you have zero high-interest debt on you. The most common example of this kind of debt is credit card debt but also includes personal loans or payday loans. While some high-interest debts have a rate of above 20%, you can consider anything above the 2% rate to be a high-interest debt. Rates below 2%, such as mortgages, are considered to be ‘good debt’ and thus do not present a significant bump stop to your investing;
• You have set aside an emergency fund: Life and investment have one thing in common: you can’t predict their trajectory or goal. Therefore, you would do well to set aside an emergency fund before you start investing. Such a fund should be at least the size of your 6-month expenses and used in cases of medical emergencies, home renovations, or any other unpredicted outcome. As such a fund can also be considered an investment, leave it somewhere without risk to your principal, such as a savings account. Relying on this emergency fund should also prevent dipping into your portfolio with early withdrawals or resorting to high-interest loans or credit cards. 

There are also checks you want to go through after you begin investing and repeat them occasionally for good measure:

• Diversifying: To reduce the total amount of risk you are undertaking, it is best to spread your investment across multiple assets into a wide portfolio. The more comprehensive it is, with more different assets, industries, and sectors, the better. Diversifying also lets you set your preferred level of risk, as you can invest a portion of your principal into high-risk, high-reward assets, without endangering your funds as a whole;
• Spreading out your investments: Investing your £100k all at once can seriously shake up the price of the asset you are purchasing. Instead of lump-sum purchase, consider using the dollar-cost averaging (DCA) approach. This will divide your investment over time into sporadic purchases with a minimum impact on the price of the asset or average cost per share;
• Stay wary of fraud: No field or industry is fraud-free, but investors tend to fall victim to more scammers than your average branch of commerce. No matter how much security improves, scammers get more creative, and their efforts are far more complicated and evasive. New forgeries are difficult to notice, documents get made to be more ‘authentic’, and con men perfect their sweet talk, especially towards novice investors. Trust your hunch when it comes down to this, as if it sounds too good to be true, it most likely is. Always check who you are dealing with. For example, always go to the register of the Financial Conduct Authority (FCA) for the company you want to put your money in. You can never be too safe when you invest.

Conclusion

Investing £100k in the UK can be used to fulfill your short-term fancies or build up your early retirement from scratch. Bear in mind, though, that investing is never 100% safe and the outcome, with both larger and smaller sums, is always less certain than we want it to be. 

However, as long as you stick to the advice given in this article, you will maintain your potential to turn the £100k into a larger sum. 

Remember not to throw your pounds at the first glittering thing that you come by, or change your investment profile on a whim. Build your approach to investing carefully and following your financial goals. Do as much research on your future investments as possible. 

With the proper amount of focus, patience, and fortune, you will grow your sizeable sum of £100k into an even chunkier pile of cash.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest £100k in the UK