Where To Invest Money If You Are Expecting Bearish

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If you have come into a £50,000 windfall, investing your money in the stock market can offer higher returns than leaving it in a savings account.

In this article we set out:

What to think about before you invest your £50,000
Six things to think about to invest your money wisely
Should you save or invest your £50,000?
Our checklist for investing £50,000

Woman sitting at table with laptop and mug — Think about your goals, timeframe and attitude to risk before deciding where to invest your money

What should I do with £50,000?

Investing your entire life savings is a very risky move. Investors should always have a safety net in case of emergencies.

Before investing £50,000, you should:

Build a cash buffer of three to six months' earnings for emergencies (and keep in an easy-access savings account)
Pay off debt like credit cards and personal loans
Contribute into your workplace pension scheme if you have one (particularly if your employer matches your contributions)
Set aside some extra cash for things you might need to pay for in the next few years like a deposit on a house
Make sure you weigh up your options, such as using some of the £50,000 to pay off your mortgage early or renovate your house to increase its value.

Once you have considered all these options, you can then think about investing.

We outline the steps to help you decide how to invest your £50,000.

1. What is your financial goal?

Think about what you want to use the money for.

Are you planning buy a house or pay for your children's tuition? Perhaps you are saving for retirement?

The answer to this question is important because it will affect how long you plan to be invested for, which has a knock-on effect on how you invest.

Find out more: Beginner's guide to investing

2. How long is your timeframe?

How long you are prepared to keep your money tied up in investments will dictate your strategy.

You should aim to leave your money invested for at least five years. If you are saving for retirement, you might want to leave it for decades.

The longer you leave your money invested, the more risk you can afford to take. This is because you have more time to:

Make returns on your £50,000
Weather any downturns in the market
Let your returns compound and grow

Read our beginner's guide to investing

With a short time horizon, there is a big risk that markets will have fallen when you need access to your money. If you cash in your investments when markets have dropped, you will lock in your losses.

Shorter term: If you are planning to buy a house in the next few years, consider a savings account or a tax-free cash ISA instead.

Longer term: If you are in your thirties and want to invest for retirement in your sixties, you can afford to take on more risk. This is because you are decades away from needing access to that cash, so it's likely that markets will have increased over that time (and you can ride out any downturns).

In the investment world, people talk about short-term, medium-term and long-term, so just to clarify:

Short term: under five years
Medium term: five to ten years
Long term: ten years or more

3. What is your attitude to risk?

The further away you are from needing access to your cash, the more risk you can afford to take.

This is because a longer time horizon enables you to weather the inevitable falls in share prices.

With that said, you need to think about your:

Capacity for loss: how much you can afford to lose
Risk appetite: how you feel about losing money

Obviously no one is happy losing money, but could you stay cool if your investments fall in value every now and then?

Over the long term, you will likely produce higher returns compared to what you would have done if you'd left your amount of money in a cash savings account. But are you able to stomach a bumpy ride?

Stock markets can be volatile, but if you don't panic and sell at a bad time, you could earn an investment return.

Find out more: Is now a good time to buy shares?

4. Use a tax-free wrapper

You should use a tax-free "wrapper" like an ISA or a pension to hold your investments. These shelter your investments from tax.

If you don't use one of these tax-efficient vehicles, you might have to pay dividend and capital gains tax. Find out more: Are ISAs tax free?

Find out why Vanguard and Barclays are our top-rated provided for stocks and shares ISAs.

Or if you are looking for a pension, Fidelity is one of the best for ready-made pensions as we explain here.

Once you have opened your wrapper, you can then select investments to go inside your wrapper.

5. Choose your approach

Broadly speaking, there are three main ways you can invest:

DIY
Buy a ready-made portfolio
Select your own funds

DIY investing

You can choose to choose your own shares and bonds, but that takes time and knowledge.

DIY investing is only really suitable for confident and experienced investors who have enough time on their hands to research the companies they are investing in.

Also bear in mind that while you aren't paying for an expert to choose investments on your behalf, it can be expensive to buy and sell individual shares.

If you want to take the DIY approach, there are a number of asset classes you can invest your money in, including:

Shares
Bonds (both corporate and government gilts)
Property
Precious metals
Cash

You could buy funds instead (where a fund manager picks stocks on your behalf), or you could opt for a ready-made portfolio.

Find out more: Is now a good time to buy shares?

Ready-made portfolio

If you are not keen on a DIY approach, you could opt for a robo-adviser (which is a digital investment platform)

The platform will ask you a series of questions relating to your goals and attitude to risk. It will then suggest a ready-made portfolio for you.

You are usually given a choice between these approaches:

Cautious
Balanced
Aggressive

Robo-advisers are a low-cost option for beginners (or those without the time or inclination to invest themselves).

Ready-made portfolios:
- Offered by online investment services such as Nutmeg* or Moneyfarm, also known as robo-advisers
- You are asked a few questions and then given a suitable basket of investments that will be managed for you
- It can work out cheaper than picking the investments yourself – although not always
- You have less choice as to what goes into that basket.

Find out more: Best investment platforms for beginners

Multi-manager fund
- A multi-manager fund is rather like getting a professional house-builder to create your home for you. The expert manager will invest in around 20 to 30 underlying funds across a range of:
  - Asset classes
  - Sectors
  - Countries
- A different mix of these will be offered depending on each client's goals and risk appetite
- Fund managers will periodically rebalance your portfolio for you
- Bear in mind that multi-manager funds tend to be expensive

Choose your own funds

This is a bit like a cross between DIY investing and ready-made portfolios.

Each fund has an investment manager that buys and sells the underlying investments on your behalf. But you have to choose the fund.

You can choose between:

An actively managed fund, where a professional investor selects stocks for you
A passive fund, which simple tracks a stock market like the FTSE 100 or S&P 500. This is the cheaper option as you are not paying a fund manager to pick stocks on your behalf.

Find out more: The impact of fees on investment returns

eVestor portfolio

Fidelity Personal Investing

Fidelity Personal Investing Cost Focus portfolio

Halifax

Halifax portfolio

**Find out more: Tom who slowly taught himself how to invest via his ISA**

6. How to mitigate risk

If you are investing with a robo-adviser and are nervous about taking on too much risk, you could opt for their "balanced" or even their "cautious" portfolio.

You should also check your portfolio once a year (or more often for DIY investors).

When you review your portfolio, you might want to make alterations if circumstances change. This is known as "rebalancing" your portfolio.

For example, if stock market prices fall you might want to buy more shares or position your portfolio to benefit when markets bounce back. Or you might want to sell assets to avoid being overly exposed to one sector or country.

If you are DIY investor, you should diversify by spreading your money across different companies, industries, asset classes, and countries.

Investing for beginners course: module one

Top rated self-invested stocks & shares ISAs

Our independent star ratings can help you find the best low-cost ISA

Barclays

Investment ISA

Close Brothers Asset Management

Close Stocks & Shares ISA

InvestEngine

ISA

"Avoid jumping out when markets hit rocky waters or you run the risk of locking in losses."
Tom Stevenson, investment director at the fund manager Fidelity International

How to get the most interest on your savings

Keeping at least a portion of a £50,000 windfall in cash can be sensible. But it might be a bad idea to keep all of it in cash because savings rates are miserable at the moment.

The Bank of England's base rate is at a record low of 0.1%, where it has been since the onset of the pandemic, which has been a blow to savers.

Find out more: When will interest rates rise?

To avoid inflation eroding your pot, you need to:

Shop around for the best savings accounts
Move your money to a better rate when your current rate ends
Make sure your cash is protected by the Financial Services Compensation Scheme
Think about the different savings accounts options available
Invest some of your £50,000

Tip: Regular savings accounts usually offer the highest interest rates. You usually have to deposit a certain amount of cash every month.

Find out more: Top savings accounts in 2021

What is the best way to invest £50,000 in property?

Broadly speaking, there are three ways of investing in property:

Buy to let: allows you to generate rental income. There are costs and commitments of becoming a landlord so do your homework.
Property development: where you buy and refurbish a property before selling it for a profit.
Property investment funds: a professional fund manager collects and pools money from many investors, putting it directly in property or in commercial property shares. Check the fees first as this will affect your earnings.

Find out more: Guide to property investment

Our checklist for investing £50,000

Tom Stevenson, investment director at the fund manager Fidelity International, gave us these tips for investing:

1. Keep calm and carry on
Staying invested throughout times of volatility is the best investment strategy. Avoid jumping out when markets hit rocky waters or you run the risk of locking in losses on shares or missing out on the gains when the shares bounce back. Investing is for the long term.

2. Don't get risk and volatility confused
They are two different things. Volatility relates to fluctuations in asset prices while risk, for a long-term investor, is about the overall quality of the company and its ability to stay competitive. If you are in it for the short game, volatility and risk become interchangeable and in that case it's not recommended you invest in the stock market.

3. Market corrections can create attractive opportunities
It's important to keep your eyes open for opportunities and be ready, say, to buy into funds or company shares that seem to be suffering but also look well placed to recover strongly. If it means picking up promising assets at bargain prices, volatility can be your best friend.

4. Drip-feed your portfolio
One way to mitigate uncertainty is to remain committed to investing set amounts of money on a regular basis, rather than a big, one-off lump sum – your £50,000.

This way you remove the risk of committing a large amount just before markets plunge, take away the temptation to try and time the market, and create the opportunity to benefit from pound-cost averaging – picking up more units in your investments when prices are low.

5. For income seekers, dividend-payers are the way to go
Dividends are generally based on company performance, so you can still expect a payout even when markets are volatile.

The second advantage is that dividend-payers tend to be robust, global brands that generate profits from a range of products and services. This means they are less vulnerable to the movements in a particular market and also add some diversification to your portfolio.

6. Reinvest your income
The power of compounding works. It is the snowball effect where you reinvest your returns and let them grow and generate their own returns. This can significantly boost your portfolio, turning small but consistent financial commitments into a considerable amount of money over time.

7. Don't be swayed by sweeping sentiment
Following the herd can work against you. Just like trends in fashion and music, investment themes can fall in and out of favour. Investors should be selective and not let their judgment become clouded by the euphoria of the market.

For more tips on setting up an investment portfolio, read our Beginner's guide to investing

Is it worth paying a financial adviser?

If you are confused about what to do with your £50,000, you could always speak to an independent financial adviser.

An adviser can benefit you by:

Looking holistically at the current and future state of your finances to better advise you
Knowing more about what options are available and suitable to you
Helping you to grow your money, while saving you time, effort and worry
A financial adviser might rebalance your investments for you

Financial advisers aren't only for the rich, although some only offer their services to those with a minimum level of assets. They do cost money, but the financial advice should be worth it in the long run.

Websites like Unbiased and Vouchedfor are a good place to find an adviser, although do your own research too and ask friends and family for their recommendations.

Find out more: How much does financial advice cost – and is it worth it?

The products mentioned in this article have been independently chosen by Times Money Mentor. If a link has an * by it, that means we may earn money. This helps fund the website and keeps it free to use. We do not allow any commercial relationship to affect our editorial independence.

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