Building a £100,000 portfolio
Successful investing isn’t about singling out a top-performing fund or getting the best return on £100,000; it’s about building a portfolio that can deliver the income or growth that you need over the years.
A balanced portfolio will normally be made up of a variety of different assets, including cash, fixed-interest securities and equities (stock market-linked investments).
Cash
Savings accounts aren’t ideal for investing huge sums of money because growth will be limited and over the years its spending power is likely to be reduced by inflation.
Nonetheless it’s always important to make sure you have enough money in easy access accounts to cover emergencies; experts typically recommend three to six months’ expenses.
If you’ve got any need for cash lump sums in the next five years, for example for holidays, a wedding or a house deposit, it’s sensible to keep that money in a savings account too. Fixed-rate savings accounts normally pay more than instant access but you’ll need to be able to park your money for a year or more.
Fixed-interest securities
Investing in fixed-interest means lending your money to businesses (corporate bonds) or governments (gilts or government bonds) in return for a fixed-rate of interest.
On the risk spectrum bonds normally sit between cash and stocks and shares, but some bonds will be riskier than others. Bonds with a lower credit rating and a greater chance of default will pay a higher yield than lower risk bonds with a better credit rating.
Bonds can be a way of reducing risk in a portfolio and are also a helpful diversifier as they don’t perform in the same way as shares.
You can invest in gilts or corporate bonds directly, or in a fund that invests in a basket of bonds on your behalf.
Stocks and shares
When you buy stock, you are buying a share or equity in a company. This means that the value of your investment will rise and fall in line with the performance of that business.
You can buy shares in individual companies or via a collective investment such as a fund, investment trust or ETF, that gives you access to a portfolio of shares in one holding.
Stock market-linked investments are higher risk than cash or fixed interest, but if you have enough time (five years at the least) they should generate better returns.
Those are likely to be the key components of a balanced £100,000 portfolio, but there are other assets you might want to consider.
Commodities
Commodities are investments in natural resources that are mined, grown or processed. Common examples include metals like gold, copper and tin.
Some funds specialise in commodities. Alternatively you can try exchange traded commodities or ETCs.
Property
Investors can access commercial property (think retail outlets, offices and warehouses) by investing in a commercial property fund. In addition to providing a steady income (from rent payments), commercial property can be a helpful way of diversifying your portfolio.
Alternatively, you might like the idea of investing £100,000 in a buy-to-let, but it’s important to be aware that increasing taxes for landlords is making it harder for new investors to make money from property. You will also have some exposure to residential property already, if you own your own home.
