Investing £1 million pounds can be a challenging task, but it’s easier than you think. Investors today have a wide range of options including funds, ETFs (exchange-traded funds), investment trusts, stocks, property, and crypto-assets, and it’s hard to know what the best investment strategy is.
How to invest £1 million pounds
Here, we’re going to look at how to invest £1 million pounds. Whether you’re planning to invest long-term savings, an inheritance, or property sale proceeds, this is how to go about investing your money.
⚠️Important. If you are unsure of how to invest yourself you should talk to a qualified wealth manager. They are able to provide advice based on your specific circumstances.
Step 1. Consider your goals and risk tolerance
If you’re looking to invest £1 million pounds, the first step is to think about your financial goals. What are you trying to achieve with your investment?
At this stage of the process, you should also consider your risk tolerance. Is capital preservation a priority? Or are you happy to take on some volatility in the pursuit of higher long-term returns?
When determining your goals and risk tolerance, it’s a good idea to consider your liquidity needs, your lifestyle, and any legacy requirements. Focusing on these three factors will help you work out how to invest your capital in the most suitable way.
Step 2. Develop an investment strategy
Once you have given some thought to your goals, you can develop an investment strategy designed to help you achieve them.
There are many different types of investment strategies one can pursue. Some popular strategies include:
- Income investing – the aim of this approach is to generate income from your investments. Income investors typically invest in assets that pay dividends, such as dividend stocks and income-focused investment trusts.
- Growth investing – the aim of this strategy is to grow one’s capital by investing in companies that are expected to grow at an above-average rate going forward. Assets that are popular with growth investors include technology stocks, small-cap stocks, and growth-focused investment funds.
- Index investing – this is a passive investment strategy that involves investing in products that track stock market indexes such as the FTSE 100 and the S&P 500. Index investors typically invest in low-cost index funds and ETFs.
Now, these strategies are not mutually exclusive. You can mix and match different approaches depending on your needs.
If I was investing £1 million pounds today, I would allocate some capital to passive investments such as the Vanguard FTSE Global All Cap Index fund (which provides exposure to over 7,000 stocks globally for a very low cost), growth funds and stocks such as Fundsmith Equity, Sanlam Global Artificial Intelligence, Microsoft, and Alphabet, and income stocks such as Unilever and Diageo.
Whatever approach you decide on, it’s important that you spread your capital over a range of different assets. You should diversify across several different asset classes (e.g. stocks, bonds, alternatives, cash, etc.) and also within asset classes. By spreading your money out over many different investments, you can significantly lower your overall risk levels.
It’s worth pointing out that your investment mix, or ‘asset allocation’, will have a significant impact on your overall returns, so it needs to be chosen carefully. If you are not sure about the best asset allocation for your goals and risk tolerance, it might be worth consulting an expert.
Step 3. Seek out tax-efficient accounts
Before you invest your £1 million pounds, you’ll want to think about investing tax-efficiently. Tax can be a major drag on wealth over time, so it’s important to seek out tax-efficient investment accounts.
One of the most tax-efficient ways to invest in the UK is through a Stocks and Shares ISA . With these accounts, all gains and income from investments are tax-free. Currently, every adult has a £20,000 annual allowance meaning a couple could potentially invest £40,000 per year into two ISAs.
- Related guide: How to be an ISA millionaire
Another effective way of investing tax-efficiently is to invest within a SIPP (Self-Invested Personal Pension). Here, capital gains and income are tax-free as well. And contributions come with tax relief meaning that they can significantly lower your Income Tax bill.
Step 4. Invest your capital
Once you have developed an investment strategy, determined your optimal asset allocation, and identified some tax-efficient accounts, it’s time to start putting your capital to work.
Here, you may want to consider staggering your investments over time. Staggering your investments will reduce your chances of investing a large amount of money at the top of the market and potentially allow you to take advantage of future ISA and SIPP allowances.
In conclusion, the key to investing £1 million pounds is to spend some time planning before you invest. By developing a tax-efficient, diversified investment strategy designed to help you achieve your financial goals, you can give yourself a good chance of success.