How to invest £100k in 2023

During an ongoing cost-of-living crisis, is it fanciful to think that you’d have £100k in cash ready to invest? Perhaps, though we all know how circumstances can change.  

Maybe you’ve just sold a property, and are unwilling to go straight back into the housing market while the cost of lending is so high? You may have recently come into an inheritance, or maybe you’ve built up a high level of savings over a number of years and are now ready to take your first steps into investing.  

With any of these situations, there may be tax liabilities involved, so please make sure you are aware of what may be due and seek specialist advice if you are unsure of your circumstances.  

Given that everybody’s wealth, personal circumstances, financial goals, and attitude to risk will differ, it’s impossible to give a definitive answer on how to invest a substantial lump sum, but here we’ll outline some of the different options – broken down by considerations you may have at different stages of your life.  

At any stage, it’s important to note that you can seek financial advice. At Nutmeg we offer both financial guidance and paid for restricted financial advice.  

Investing £100k in your 20s and 30s 

As covered in our recent Life Moments blog, your twenties and thirties can bring about significant changes to your financial circumstances, particularly in terms of settling or building a career, and potentially starting a family.  

While you may not necessarily be earning a high salary, or have much spare money to put away, there are still circumstances when you may have a lump sum to invest. For example, for those just entering their twenties, your family may have already invested for you in a Junior ISA or Child Trust Fund with funds that you now have control over as an adult. 

Two potential benefits of investing at a younger age are the possibility of a longer-term investment horizon, and a wide product selection to choose from.  

As we have explored previously in our Harnessing the power of long-term investing blog, the longer you invest, historically the more chance you have of making money. While no investments are ever guaranteed, starting to plan early for your retirement, as an example, could help maximise your chances of a reaching your desired goal. You could be investing for multiple decades, while also benefiting from the power of compound returns.  

As our recent blog, How to become a pension millionaire explains, you may not necessarily need to be investing huge sums into a pension to reach a sizeable pot over 30 plus years. Imagine how far a proportion of your £100k could go to beginning that journey towards retirement via a personal pension, with its additional tax relief. However, note the annual allowance for pensions in the current tax year is £60,000 (or 100% of your salary, whichever is lower).   

Where to invest £100k 

While there are many different asset classes to tempt investors today, including property, cryptocurrencies, art and commodities, the most common are equities and bonds given their relative liquidity and ease of trading. One way to do this is via Exchange-Traded Funds (ETFs), a way of investing across market indices, and that Nutmeg uses in its portfolios.  

For those wanting to take this route, a stocks and shares ISA in its different forms may be the first port of call. However, like with a pension there are annual allowances that mean you will not be able to invest all of your £100k in one single tax year to earn tax efficiency. The annual allowance for ISAs is £20,000, though the rules change across different products as we’ll explain here.   

An added incentive to invest for those aged between 18 and 39 is the Lifetime ISA (LISA), which we explore in our Guide to LISAs. Lifetime ISAs could help investors either get on the property ladder, or start to invest for their retirement. Used for these purposes, the LISA can offer a 25% government bonus on your contributions – though you can only invest up to £4,000 in a LISA, as part of your £20,000 total annual ISA allowance in any given tax year.  

So how else to invest your £100k? Those with children may want to consider a stocks and shares Junior ISA, which can be set up by a parent or guardian for children under the age of 18 (at Nutmeg,  it can only be opened for a child who is under 16). As the money in the JISA belongs to the child, the JISA annual allowance of £9,000 is separate from your own £20,000 total ISA allowance.  

So, presuming you have maxed out your annual pension and ISA allowances, can you still continue to invest your lump sum? The answer is yes, though you may have to pay income or capital gains tax on your returns. Still, a general investment account can be a great way to invest easily into markets with no limit on how much you can put in at any one time.  

Investing £100k for the over 40s  

As at any age, circumstances will differ for each individual, but it’s often the case that the older you get, the more wealth you may accrue as your career progresses and you potentially build up assets, such as owning your own home. Your responsibilities though may also increase, particularly if you have children or older relatives to look after.  

Considering your outgoings, you may find that addressing your current liabilities makes more sense than investing. For example, you may wish to use some of that £100k to pay off some of your existing mortgage, though be sure to check the terms and conditions with your lender as this can come with penalties.  

As we journey closer to our retirement, it also make sense to keep a closer eye on our pension provision, perhaps even consolidating your various workplace pensions into one personal pension. As we’ve already discussed, putting a healthy share of your lump sum into a pension (annual allowances considered) could help you on your way to your dream retirement. However, it may also be worth revisiting your attitude to risk, particularly if you plan to retire in the near future.  

Investing your £100k doesn’t mean it has to be in the same place with the same risk bracket. For example, if you have only a few years left until your retirement, you may wish to top up your pension at a lower risk profile – with more money invested in bonds, and less in equities – while taking more risk with your ISA that’s earmarked for a round-the-world trip after you’ve retired. Nutmeg clients can change their risk profiles with relative ease, though you may also wish to consider seeking financial advice.  

While considering risk, you may also wish to take note that the Financial Services Compensation Scheme (FSCS) will only protect your first £85k invested with any UK registered bank or building societies, in the unlikely event that it goes bust. All providers will have a custodian who looks after client money – in Nutmeg’s case this is State Street – one of the world’s largest custodians. And at Nutmeg your money is completely segregated from the company’s funds. 

Even if the thought of having £100k ready to invest remains just a dream for another day, you can still use ISA and pension products to keep your pot (of whatever size) tax efficient and fully invested in line with your risk profile.  

A lump sum or not, those considering investing may wish to speak with one of our experts who can help you with your long-term goals in making the most of your money. Book a free call to discuss your options.  

Risk warning 

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may be subject to change in the future.