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The best ways to invest £5k

So, you’ve got £5k to invest. It’s a brilliant position to be in, but it’s vital to make your investment decisions based on your individual needs and aims.

Is it about going for maximum growth, creating an emergency fund or paying off debt?

We explore the best ways to invest your £5k below.

When thinking about investing for your future, the first thing you need to look at is your current circumstances.

What’s going on in your life? What are your aims — both in the short and long term? Do you already have an initial savings pot or is this the start of something? 

£5k is a healthy sum, which could make a difference in numerous ways.

Here we look at your options and how best to make that money work for you — now and for the future

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What are your investment objectives?

Before rushing into any investment, take some time to think about and evaluate your priorities and lifestyle.

Here are some key things to consider: 

  • A rainy day fund. It’s well worth putting between three- and six-months’ money in an easy-access savings account to cover essential outgoings. This will provide a safety net should your circumstances change unexpectedly 

  • Money for major life changes. Another very good reason for keeping funds in an easy-access form of savings account is if you have big plans, such as starting a family or moving house 

  • Clearing debt. There’s no point in putting all your money into savings if you’re carrying expensive debt, such as on credit cards. It would make sense to prioritise paying off this kind of debt 

  • Overpaying your mortgage. Paying off a chunk of your mortgage could save you a lot of money in interest — especially if you still have many years left on your term 

Learn more: should I pay off my mortgage or invest?

Are you happy to have restricted access to your money?  

To get the best returns on your £5k, you would need to consider investing it for at least five years and forego the security of cash savings. 

What are your investment options?

It’s really important to remember that investing money carries an element of risk and unpredictability.

That’s why it’s always a good idea to speak with a financial adviser about your plans before making any commitments.

Here are some of the established ways to invest £5k. 

  • Stocks & shares ISAs. Invest your £5k in a stocks & shares ISA and you won’t pay income tax or capital gains tax  

  • A pension. A great way to save for your retirement, and as you can tax relief on anything you pay in, within certain limits. This could give your £5,000 an immediate boost, but you must be happy to lose access until at least age 55. 

  • Shares. Buy stocks and shares in a company and you’ll earn money if the value of the company rises. Naturally there’s risk involved if the company performs poorly, but if it does well you could benefit from growth and dividend payments 

  • Bonds. These are issued by companies or the government as a kind of debt. Essentially, they pay annual interest on the money that investors are loaning them. Bonds are often considered to be a safer bet than stocks and shares 

  • Investment funds. These are a form of collective investment, where you put your capital in a ‘pool’ with other investors. Although you don’t have the same voting rights as you do with shares, the risk is usually lower, because you’re investing in lots of companies instead of a single one 

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What level of risk are you comfortable with?

Before taking any decisions about investing your £5k, you need to be clear about how much risk you’re comfortable with.

How do you feel about the prospect of potentially losing money, and how much can you afford to lose? 

It’s possible that your £5k could rise and fall in value, so you need to be honest with yourself: are you comfortable with this, or would it give you sleepless nights? 

If ups and downs make you nervous, it might be an idea to go for a simple savings account.

Something like fixed rate bonds provide much greater security and certainty, and typically offer higher interest than current accounts, so you’ll know how much your £5k is going to be worth at the end of the policy term. 

Should you speak to a financial adviser?

It’s a good idea to seek professional advice when you’re deciding how to invest a lump sum — especially if you’re new to investing.

A financial adviser can take an impartial, expert look at your circumstances and pinpoint the best way forward.

They will also know what the current investment trends are — what’s working and what to avoid.

Basically, an adviser can take away the hassle and doubt involved in trying to make a decision on your own. 

Establish your personal goals, think about how much risk you can afford and are comfortable with, do some research and talk to a financial adviser.

Then with a clear head, invest your £5k your way. 


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About the author
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.