How to invest £10,000

Here’s all you need to know about the best way to invest £10k. We cover what you need to consider, places to invest £10k in the stock market, and much more.
How to invest £10,000
Updated
June 15, 2022

Table of contents

When you’re looking for the best way to invest £10k, there can be so many options that it feels overwhelming.

But, all the choices available should get you excited. There’s no single best place to invest £10,000. Instead, there are tonnes of options to suit every type of investor. 

It’s important to understand that the information provided here is simply to be used as a tool to help inform your decisions. 

Nothing mentioned below should be taken as a financial recommendation to buy or sell any particular investments.

If you’re ever unsure about the suitability of any investments, it might be worth discussing your situation with a financial adviser.  

Things to consider before investing £10k

Before you go steaming ahead into any particular investment or strategy, there are some key areas that you need to consider first.

1. Is investing right for me?

Investing isn’t for everyone and that’s okay. You should only invest if it’s the right course of action for your own personal circumstances.

Don’t be swayed by friends or anyone else telling you that you must invest. 

It’s an extremely personal decision. Because, at the end of the day, you are inviting added risk into your finances.

That being said, investing can be a great way to grow capital over long periods of time. 

And, it’s important to be fully aware of the risks of keeping too much cash. Even at normal levels, inflation eats away at the value of your money if it’s left to sit idle, gathering dust.

We’ll cover some of these areas in more detail, but here are a few key questions to think about:

  • Do you have any high-interest unsecured debt like a credit card that needs to be paid first?
  • Is your time horizon at least five years?
  • Have you built up a decent emergency fund?
  • Are you happy to take on some risk to pursue better returns?

2. Saving or investing £10,000?

A key area you’ll need to think about before you begin, is whether you want to save or invest your £10k.

Holding the money in a savings account can be a secure short-term option. Your money isn’t going to fall but, given the current levels of inflation around the world, it’s unlikely to grow in real terms either.

Over time cash in your savings account will lose purchasing power if the interest rate you’re getting is lower than inflation.

Investing it can provide a better opportunity to grow over the long term.

It’s also possible to have the best of both worlds. You can hold a portion of your £10k in an accessible savings account.

Then, any remaining funds not needed for the foreseeable future can be put into long-term investments, improving the chances of growing your savings.

3. Set up an emergency fund

Another way to make you feel more secure before investing your £10,000 is to set up an emergency fund.

You can dip into this pot of cash whenever you need to. Unexpected things happen in life and you can’t plan for every possible outcome.

Having some money set aside is a sensible starting point, so that you hopefully don’t need to dip into your investments if the boiler needs replacing or the car breaks down.

Some people recommend having at least £1,000 in an emergency fund. Others suggest having three to six months of living expenses to hand. 

The most suitable amount will depend on your situation and lifestyle.

Think of it as an insurance policy. Take some time to work out how much would give you a comfortable cushion.

This will then allow you the freedom to put the rest of your savings to work if you want to try and build wealth.

4. Determine your risk profile and investment timeframe

We’re all different. Your specific goals and age could help determine what’s the best course of action for you.

But the most common starting point for anyone’s investment journey is to think about something called a risk profile. 

You might have goals in mind, but you might also not have the capacity or the stomach for a loss. It’s important that goals and risk come together in some reasonable assumptions.

There’s no point investing to buy a mansion in Chelsea if you have £10k, 10 years and a low tolerance for risk.

A good place to start thinking about your risk profile and how you might construct a portfolio that suits that profile is to frame your goals in a time horizon: short, medium and long term. 

Short-term investing

Alongside your emergency fund, you might have immediate things you need to plan and save for.

This could be a holiday, a new games console, or some comfy running shoes. 

Whatever it might be, investing in order to meet these goals but with limited time to get there, can have challenges.

Investing always comes with the risk of losing your capital. The good news is that over the long term, more often than not, losses are usually recovered. 

But if you’re only giving yourself a short period to achieve your money targets, then there is less time for recovery should you experience a loss.

This needs to be taken into account, alongside the nature of the expense or outgoing you’re looking at. Is it something that you need or would just like, for example.

All of this is why it’s usually a good idea to invest for at least five years.

Medium-term investing

Perhaps you’re looking to put down a deposit on a house or eyeing up a new car.

With more time on your side, you might want to consider taking on some more risk inside your portfolio

And this is why the time horizon is so important. With more time on your side, you can start to think about a diversified portfolio of investments constructed to meet your aims.

This could involve a mixture of bonds, investment trusts, or direct equity investments. 

The important thing to remember with investing is the more risk you take, the better the return might be. But it works the other way too, more risk also means a higher chance of loss. 

Long-term investing

Your future goals might be to start your own business, retire early, or make sure your family can live comfortably. 

Importantly, the longer the time horizon, the better the chances are of growing your wealth and reaching your goals.

It also means that you can probably assume more risk by increasing your portfolio’s allocation to riskier asset classes like stocks.

Choose between active vs passive investing

Once you’ve made up your mind that investing some, or all your £10k, is the route you want to take, and you’ve decided on an asset allocation after taking into account the risk considerations, the next step is to select the investments you want.

For the main asset classes of stocks and bonds there are two main paths to go down: active or passive investing.

  • Active investing: refers to a hands-on approach from you. If learning more about investing is something that interests and excites you, this could be a great way to expand your knowledge. But, this will be more time-consuming, and you’ll have to stay on top of managing your portfolio and investments.
  • Passive investing: this is more of a hands-off approach. Rather than actively picking stocks, it involves investing in ready-made portfolios like ETFs. These are designed to track the performance of an index, hence the nickname ‘trackers’. Once you’re invested, you can let your money ride in your chosen investment without any need to tinker.

It’s possible to be successful using both methods.

Active investing can offer higher rewards, but it can be riskier as there’s no guarantee your stock selection will beat the performance of an index.

Passive investing can reduce your risk, but means you’re not likely to ‘beat the market’ or have much control over your portfolio.

It comes down to your personal preference. Whichever way you decide, you can put your £10k in as a lump sum, or drip-feed it over time, like every month after you get paid.

Where to invest £10,000 in the stock market?

If you’ve thought about your risk profile and asset allocation and have decided to put your £10,000 into the stock market, there are a lot of potential routes to explore.

Here’s a breakdown of some of the ways you can put £10,000 to work in the markets:

Stocks

Putting your £10k directly into stocks and shares can lead to rewarding returns. 

But, doing so can require more investing knowledge. It will be up to you to decide which shares to purchase and it’s up to you to make sure you’ve diversified your portfolio enough. 

Freetrade also lets you buy fractional shares in companies in certain markets, helping you get access to some companies with high absolute stock prices.

Of course, there are different levels of risk within individual stocks or shares, depending on the sector and region.

You might decide to put your money into tech stocks. Or, a smaller niche such as cannabis stocks. This decision will impact your results, for better or for worse.

It’s important to weigh the potentially high rewards against the risk of picking poor stocks.

Dividend-paying stocks

Dividend payments aren’t guaranteed. But, there are certain stocks and shares that have a long and storied history of paying dividends to investors. 

If you opt to invest your £10k this way, it’s still important to make sure you diversify.

And, although dividend stocks can lead to a relatively reliable and steady source of income, there are still other elements to think about.

Dividend stocks rise and fall like any other. So, the industry or company you’re investing in is as important as the dividend being paid.

And if you’re not using a stocks and shares ISA, those dividend payments can affect your taxes. You also need to think about whether you want to reinvest those dividends or not.  Putting those dividends to work to rack up, even more, can be a great tactic to boost your compound returns.

ETFs

Exchange-traded funds (ETFs) can be one of the best ways for beginners to invest.

With one single, often cheap, investment you can own a potentially diverse range of stocks and shares.

The key advantage with an ETF is that you are spreading your investment across a wide range of companies and in doing so lowering the risk that the performance of one single investment will have an outsized impact on your portfolio, in either direction.

But, not all ETFs are created equal. Choosing to invest in ETFs can involve varying degrees of risk and diversity. 

With a passive investment like this, you still need to do your research. You don’t have to just put all your money into one ETF either.

Choosing a few ETFs can allow you to build your portfolio with a selection of different funds, adding even more diversification.

REITs

If you want to invest in property but don’t want to go through the hassle of becoming a landlord, Real Estate Investment Trusts (REITs) are a unique option to explore. 

A REIT is a way to gain indirect exposure to the property sector (commercial and residential) via partial ownership of a larger company that manages a portfolio of properties.

REITs are usually companies that trade on stock exchanges like any other company. If you own shares in the REIT, you get exposure to the profits that the company might make.

Crucially, REITs are subject to special tax rules whereby they are required to pay out at least 90% of their profits as dividends, and so often REITs are considered alongside other dividend paying companies.

Investing in REIT stocks can be a great way to get diversified exposure to the property asset class with your £10k.

IPOs

Upcoming IPOs (initial public offerings) can provide you with an exciting opportunity to invest in a company as they go public.

But, these events are notoriously volatile. Sometimes large returns can be made, but there’s still a chance of losing money.

This is because the market will go back and forth trying to decide how to value these stocks. 

Investing some of your £10k into an IPO could easily become a good or bad short-term investment. 

Often, it can work in your favour to keep an eye on the firm and wait until the dust settles, once the market decides a fair valuation.

Bonds

This type of investment has been traditionally used to give investors some portfolio stability.

Bonds are a form of debt used by both governments and companies. When you buy a bond, you’re lending to the borrower a fixed amount that will be paid back at an agreed point in the future.

In return, the borrower often pays you a fixed interest rate over the term of the loan.

This is why bonds are known as fixed-income securities.

Hold a bond for the full term and, generally speaking, your return is fixed.

But, similar to stocks, bonds can be traded on exchanges. So, if you sell your bond before repayment is due, you could make a capital gain or a loss, depending on the circumstances and risks.

The biggest risk to bond investing relates to interest rates. And, anything that might impact interest rates, like inflation.

Investment trusts

These close-ended funds can be an excellent way to have your £10,000 expertly managed.

Each investment trust has its own objectives. This could mean a specific style of investing or concentrating on a particular sector or region. 

Expertly managed doesn’t necessarily mean the trust will outperform the benchmark it is aiming to beat. Some trust managers have a good track record, some don’t.

So it is important to do research into the trusts to identify the ones that you think have a good chance of outperforming.

Also, the expert management of your money comes at a cost. 

Certain investment trusts have substantial ongoing fees. These costs are paid whether the trust makes or loses money. And this can eat into your overall returns.

Investment trusts are also able to use gearing, which means borrowing money. This can maximise gains or increase losses. 

SPACs

Special purpose acquisition companies (SPACs) were one of the biggest investing trends in recent years.

Investing some of your money into a SPAC can be an exciting way to get access to a stock before it goes public.

When you invest in a SPAC, you’re providing funds to the management team who’ll try and find a compelling investment to take public.

This is somewhat of a lucky dip, though. You may not know from the outset what type of investment the SPAC manager is going to take. So, you’re putting a lot of trust into the people making the investments.

The potential rewards are significant, but so too is the risk of a poor investment.

Commodities

Putting some of your £10k into commodities can be an excellent way to provide some stability within your portfolio.

Some commodities such as gold, silver, and oil have previously performed well during times when other asset classes, like stocks, have performed poorly, during times of inflation, for example.

Investing in commodities can also provide an added level of diversification.  Prices of commodities tend not to move in lock-step with stocks or bonds. 

But, commodities come with their own unique risks. Prices can be influenced by politics, foreign currency movements, and supply factors. All of which can be extremely unpredictable.

Property

If you don’t want to use a REIT, there are other ways to invest some of your £10,000 into property. 

You might not be able to build a house or flat with £10k, but you could buy shares in companies that do build houses and flats. 

The property industry has a long list of firms that supply it. You could look to buy shares in firms that provide materials to the actual property builders, for example.

Like everything else, real estate investing comes with its own set of specific risks. A drop in demand for certain property types, rising interest rates, or increases in material costs can all have knock-on effects on your investments.

How to invest £10,000 safely

The exact way you’ll invest your £10k can vary wildly. But there are some tips and tricks you can use to invest safely. 

Minimise costs

When you’re investing, it’s surprising how much of a difference costs can make.

If you pay high commissions or fees, this already puts your investment on a negative footing. So, you have to earn a certain return just to break even. 

Then, you might have ongoing costs associated with your chosen investment. In a similar way that your gains can compound over time, so can your costs.

Over the long term, your investing costs could have a sizable impact on your ability to build wealth. So, it’s important to read the fine print and understand what charges are entailed with different types of investment.

Diversify

Diversification is something you’ll hear a lot, and that’s because it is so important. Some people call it the ‘only free lunch’ for investors.

There’s no perfect way to diversify, it will depend on your personal investing goals. 

To show you what this could look like, here are some examples portfolios broken down by risk profile:

Defensive and cautious - low risk

A low risk or cautious portfolio will tend to have a lower allocation to riskier assets like stocks and shares and a higher allocation to fixed income assets like bonds. 

Within the specific asset classes, there are different scales of risk. A bond investment with the UK government is considered essentially risk free, whereas a bond investment with a small emerging country would be considered higher risk. 

The same is true with stocks. Shares in a large firm, from a mature developed country,selling staple products would be considered a lower risk than shares in an emerging market firm that sells exclusively to its government.

Balanced - medium risk

Balanced or medium risk portfolios would normally have a relatively equal split between riskier assets such as stocks and lower risk assets such as bonds.

Often they will include the added diversification benefits of a small allocation to other asset classes like property and commodities.

Adventurous growth - high risk

Here, portfolios might consist of a majority, or large exposure to riskier but potentially higher returning assets, like stocks.

And within the different asset classes, you might find selections at the riskier end of the spectrum. This could include shares in emerging market firms or bonds issued by emerging market companies.

How to invest £10,000 and get the best return possible

This is all about being a smart investor. There are many areas of investing that you have no influence over.

But, there are areas that you can directly control with your decisions. 

Making intelligent choices, using the right type of account, and understanding how to minimise your tax can all work in your favour.

General Investment Account and tax allowances

With a General Investment Account (GIA), you don’t get any protection from tax on returns you make.

However, there are certain allowances in place right now. Meaning you can earn a level of profit before paying tax.

This tax year, you have a capital gains tax (CGT) allowance of £12,300. So, you only have to pay CGT on returns over this threshold. 

It’s worth pointing out this only applies if you actually sell investments and convert them into cash. 

You also have a dividend allowance. You’re able to receive up to £2,000 in dividends from your investments without a tax bill. But, anything over that will be charged at a specific rate that’s based on your tax bracket.

Tax allowances are subject to change and you always need to think about how investments could affect your wider finances. Speak with an accountant or a professional if you need someone to look at all your options.

Investing £10,000 with a stocks and shares ISA

Using a stocks and shares ISA is an excellent way to protect your investments from tax.

Any investments held within the ISA wrapper are not subject to CGT or UK dividend tax.

When you decide to sell them or withdraw funds, you don’t pay tax on any profit. Doing this doesn’t affect your income tax either.

The yearly ISA allowance right now is £20,000. So, there’s plenty of room for you to be able to invest your £10,000 into an ISA and still have space for extra investments throughout the tax year. 

Remember though, that an ISA is a wrapper and you’ll still have to choose which investments to keep inside it.

Play around with our ISA growth calculator to see what your investments could be worth.

Investing £10,000 with a SIPP

A self-invested personal pension (SIPP) is another tax efficient way to invest your £10k.

If you invested £10,000 into a SIPP pension, it could be topped up with tax relief by the government if you haven’t already used your annual pension allowance, which is currently £40,000.

The tax relief available ranges from 20-25%, depending on your income tax band.

So, if you’re a basic rate taxpayer and you put £10,000 into your SIPP, the uplift means your portfolio would immediately rise to £12,500.

If you’re a higher-rate taxpayer or additional-rate taxpayer, this relief top up will be even more, and you’ll claim relief through a self-assessment tax return..

So, you can boost the value of your £10,000 portfolio before you even make any investments.

But, SIPPs come with restrictions. You can’t access the money until you’re at least 55 (rising to 57 in 2028) and there are tax implications depending on how you choose to access your SIPP after you retire.

Investing £10k ethically

Socially responsible investing (SRI) and ‘ethical’ investments have drawn a lot of attention recently and is becoming more mainstream.

Ethical investing isn’t a perfect system and there’s a lot of debate over what’s ethical and what isn’t.

But, there are now more ways than ever you can attempt to invest your £10k ethically. This could be by using ESG ETFs, or selecting individual stocks trying to have a positive impact. 

You can tailor your investments to your own personal ethics. Just be sure to understand exactly what it is you’re investing in before putting your money to work. 

How much can you make if you invest £10k?

This will depend on the way you decide to invest your £10,000.

Opting for higher risk investments can lead to more growth. But there’s also a greater chance of losing money. 

Can you turn £10k into a £100k?

Doing this is definitely not impossible. It will depend on how you choose to invest, and your time frame. 

It is possible to turn £10k into £100k. But, to achieve this you’re likely to have to invite much more risk into your life.

What are Freetrade users investing in with £10,000?

It’s always a useful insight to see where others look to invest £10k. Not necessarily to copy what they’re doing, but it can reveal some wider trends to help inform your own strategy.

So, here are the most traded shares on Freetrade for users with portfolios over £10,000:

Most traded stocks on Freetrade for users with portfolios over £10,000
Rank Name Ticker
1 Tesla TSLA
2 Apple APPL
3 Microsoft MSFT
4 Alphabet (Class A) GOOGL
5 Amazon.com AMZN
6 Meta Platforms FB
7 Palantir Technologies PLTR
8 NVIDIA NVDA
9 Alibaba Group Holdings BABA
10 Advanced Micro Devices AMD

For those who prefer fund investing, these are the most traded ETFs and investment trusts being bought on the platform for users with portfolios above £10k:

Most traded ETFs on Freetrade for users with portfolios over £10,000
Rank Name Ticker
1 Vanguard FTSE All World UCITS ETF (Dist.) VWRL
2 iShares Global Clean Energy UCITS ETF (Dist.) INRG
3 Vanguard S&P 500 UCITS ETF USD (Acc.) VUAG
4 Vanguard S&P 500 UCITS ETF (Dist.) VUSA
5 Invesco NASDAQ 100 UCITS ETF (Dist.) EQQQ
6 Scottish Mortgage Investment Trust SMT
7 iShares Core FTSE 100 UCITS ETF (Dist.) ISF
8 iShares UK Dividend UCITS ETF (Dist.) IUKD
9 Vanguard FTSE All-World UCITS ETF USD (Acc.) VWRP
10 iShares S&P 500 UCITS ETF (Dist.) IUSA

There’s no single best place to invest your £10,000. But hopefully, the information provided here will act as a springboard to help you research some options that might be right for you.

The best way for you to invest your £10k will be completely unique to your circumstances and goals. Just keep in mind that when investing, your capital is at risk. You may get out less than what you put in.

At Freetrade, we want to make it easy and accessible for everyone to invest in the stock market. That’s why we built our stock trading app from the ground up and focussed on helping customers achieve better, long-term financial outcomes. Start with an investment account or a tax-efficient account like an investment ISA or a SIPP pension.

 

‍Important information

This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.

When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.

Eligibility to invest into an ISA or SIPP, and the value of tax savings both depend on personal circumstances and all tax rules may change. 

‍Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).

Important information on SIPPs

SIPPs are a pension product designed for people who want to make their own investment decisions. You can normally only access the money from age 55 (set to rise to 57 from 6 April 2028).

This article is based on current rules, which can change, and tax relief depends on your personal circumstances. When you invest, your capital is at risk.

The value of your portfolio can go down as well as up and you may get back less than you invest.

Before transferring a pension you should ensure you will not lose valuable guarantees or incur excessive transfer penalties. Pensions are usually transferred as cash so you will be out of the market for a period.

Freetrade does not currently offer drawdown products for our SIPP.

Important information

This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice.

When you invest, your capital is at risk. The value of your portfolio, and any income you receive, can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.

Eligibility to invest into an ISA and the value of tax savings both depend on personal circumstances and all tax rules may change.

Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).

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