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How you can wisely invest £36,000?

September 29, 2014//


How you can wisely invest £36,000?


Savvy investors know that if you want to increase your wealth, you have to make every penny work harder. However, when faced with a lump sum to invest, there are a huge range of choices available. One big challenge for investors in the current economic environment is finding a way of generating good returns without taking too much risk with their money.

The best way to grow your wealth is to have a diversified portfolio so that any poorly performing assets can be balanced out by others which do better.


Cash: Cash is the least risky investment, but given that interest rates on cash are pitifully low, your money is effectively being eroded in real terms because of the effects of inflation.

Plus if you are a higher rate tax payer then holding most of your money in cash is not tax efficient as you will have to declare any interest you earn outside an Individual Savings Account (ISA) and pay tax on it at your highest rate.

This is an important consideration which people often neglect to take into account.

Also, cash interest rates are at an historic low – the best interest rates paid on two year fixed rate bonds are only around 2% and variable rates on cash deposit accounts range from 0.75% to 1.40%. With the annual rate of inflation in August at 1.5%, most savings rates are not even keeping up with inflation.

Cash is the best option if you are going to need quick access to your money. However, if you have a three to five year time frame, then the range of options available increases considerably.


Bonds: In effect, bonds are IOUs by companies. They are a means of raising money to finance expansion or other projects. The interest paid on the bond is known as the “yield” and it is this which is most attractive to investors.

You are likely to get a higher yield on bonds from companies with less solid financial foundations (sometimes known as “junk bonds”) than you are from blue-chip FTSE 100 companies.

Bonds can provide a useful income but do not offer the capital growth potentially available from equities.

UK Government bonds are known as “gilts” and are regarded as very low risk, but they also pay a comparatively low rate of return compared to company bonds.

Bonds are a useful addition to your portfolio if you require the protection of your initial capital and an income stream. They are suitable for people who are close to retirement, and those who want a proportion of their wealth in low-risk investments.


Stocks: The advantage of stocks and shares (equities) is that they do offer some protection against inflation, plus the opportunity for capital growth and/or income. The drawback is that equity prices can rise and fall and your initial capital sum is not protected.

You can diversify and reduce your exposure to risk by buying pooled funds rather than individual shares but you will still need to monitor your investments and be ready to sell if the markets look set for a long period of downward momentum.

Holding stocks within your ISA makes them more tax-efficient but if you make losses within your ISA you won’t be able to offset them against capital gains or add them to your annual Capital Gains Tax (CGT) allowance.

Commodities: Commodities invest in physical products such as metals, oil, agricultural procures and other resources. Demand for commodities to support China’s construction boom has slowed recently, according to the Bloomberg Commodity index, which tracks 20 commodity prices.


However, commodities can be an attractive element of an investment portfolio because they do not necessary correlate with the behaviour of equities and so can be a useful diversification tool.

Rather than buy gold bars, for example, private investors tend to trade in commodities funds.


US Property: If you already have holdings in cash, bonds and UK equities, then you could look further afield at overseas property as an opportunity for diversification and potentially greater returns.


Investing in US Property can also generate reliable income if you choose the right type of property in the right area.

However, buying individual properties is time-consuming and expensive for UK residents, and so a practical and tax-efficient solution is to buy US property as part of a group investment with other investors.

That way, you have exposure to far more valuable properties than you would if you were buying individually. For example, a lump sum in the region of £36,000 is unlikely to be a large enough deposit to raise finance for a US property, and buying an individual property exposes you to a greater risk of voids and tenant problems as your risk is concentrated in a single apartment or house.

However, buying a share of an accommodation block with other investors means you can spread your risk, you don’t need to leverage your investment, or arrange mortgage or other loan finance.

Opting for a pooled investment relieves you of much of the administrative headache and paperwork associated with individual property ownership.


One company, CityR, specialises in helping investors buy into multi-family residences with the prospect of 10% plus income, and the opportunity for capital gain when the property is eventually sold.

Ron Szekely, Founder of CityR , says: “The recent economic crisis and the decline in US property prices means there are fantastic opportunities available – if you have the scale to take advantage of them. For example, the average annual yield of our investment in Chestnut Ridge, Louisville, Kentucky has been 12.9%.

He adds: “We understand that for most investors, a return of 10% per year is seen as high nowadays.”

Current yields on British property are typically between 4-6% broadly speaking. The minimum investment with CityR is £36,000, subject to Dollar/Pound currency exchange rates.

If you want to learn more on how to wisely invest in US Click Here
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