Long-term investing can be one of the most powerful ways to build wealth over time - and having £200,000 to work with can set you towards that path.
That said, today, you have several dozen choices when it comes to investments. Your aim is to build a balanced portfolio that can withstand market volatility while giving you enough room to benefit from economic growth.
With that in mind, in this How to Invest £200K UK Guide, we discuss the best ways for you to put your money to work in 2021.
We will also explore how you can find the best UK brokers to access the investment space in a cost-effective manner.
- How to Invest £200K UK in Five Easy Steps
- How to Invest £200K UK - Top 10 Investments in 2021
- How to Invest £200K UK - Choosing the Right Assets
- How to Invest £200K UK - Why Should you Diversify?
- How to Invest £200K UK - How to Select your Online Broker
- How to Invest £200K UK on eToro
- How to Invest £200K UK - Conclusion
How to Invest £200K UK in Five Easy Steps
Before we dive into our guide, we will take a look at how to invest £200k UK in five simple steps:
- Choose an online broker that offers you access to a wide range of different asset classes - like the FCA-regulated broker eToro.
- Open an account on the platform by filling in the required information.
- Fund your account using one of the supported payment methods - such as a credit/debit card, e-wallet, or bank transfer.
- Find the financial instrument you want to invest in.
- Enter how much money you want to invest in the chosen asset and confirm the trade.
By choosing a UK broker such as eToro, you will also be able to take advantage of commission-free investments without having to pay any stamp duty.
How to Invest £200K UK - Top 10 Investments in 2021
When thinking of how to invest £200k UK, there are a few aspects that you will need to consider. Not only do you have to find investments that meet your financial goals, but you will also need to make sure your chosen assets are readily accessible to you.
If you are not sure where to get started, take a look at the investments we have listed below for your asset allocation. These offer you a variety of options to grow your portfolio by investing across varying levels of risk.
1. S&P 500 Index - Best Investment for US Market Exposure
Investing in an index is one of the best ways for you to gain exposure to a diversified basket of stocks. For those unaware, the S&P 500 is a stock market index made of the best-performing US companies in terms of market capitalization.
The index constitutes some of the most popular firms in the financial market - including Apple, Microsoft, Alphabet Inc (Google), Facebook, Tesla, and many more. Put otherwise, if you place your money into the S&P 500 - you will own shares of all these companies through a single investment.
Historically, the S&P 500 Index has demonstrated a positive performance. Over the course of the past five years, the index has displayed a return of nearly 100%. Many of its constituents have performed exceedingly well - such as the likes of Microsoft, Apple, Tesla, Amazon, Nike, Visa, and more.
Although these companies might not be the cheapest stocks in the market, they can bring you higher returns over the long term.
That said, you cannot directly invest in this index. Instead, the best way to gain access to the S&P 500 is through an Exchange-Traded Fund (ETF). These are financial instruments that replicate the performance of an asset - in this case, the S&P 500 Index.
Such ETFs are actively traded on the stock market, allowing you to buy and sell your investment at any given point. Some of the top-performing ETFs that track the S&P 500 Index include:
- SPDR S&P 500 Trust ETF
- Vanguard 500 Index Fund
- iShares Core S&P 500 UCITS ETF USD
- HSBC S&P 500 UCITS ETF
You can invest in such ETFs easily through regulated brokers such as eToro on a zero commission basis. Meaning, you will get to keep most of your potential profits for yourself.
2. FTSE 100 Index - Best Investment for UK Diversification
The FTSE 100, popularly known as the Footsie, is made of the largest 100 companies in the UK based on the market cap.
In a lot of ways, this index can be looked at as the UK equivalent of the S&P Index. In fact, it is one of the world's largest stock indices - with a market capitalization of nearly £2 trillion.
The constituents of the FTSE 100 Index are generally considered high-quality stocks. This is primarily because these firms have a proven business model and have demonstrated a stable performance over the years. As such, they are leading companies in their own respective sectors.
The index also hosts several notable names in the UK economy - including Unilever, Tesco, British American Tobacco, AstraZeneca, and others. In addition, many new names have also been added in the past year - such as Moonpig.
In April 2021 - the value of the FTSE 100 Index has zoomed past 7,000 points - a major milestone since the pandemic hit the financial markets.
Looking ahead, with the technology sector taking the front seat - the index could continue moving in a favourable direction for investors. Moreover, companies such as Royal Dutch Shell have been heavily investing in the renewable sector - which could drive up the price of the index even further.
As with the S&P 500, the best way to invest in the FTSE 100 is also through ETFs. This will allow you to gain access to the top companies in the UK economy in the most convenient and straightforward manner.
Here are some of the most prominent ETF providers for the FTSE 100 Index:
- HSBC FTSE 100 UCITS ETF
- iShares Core FTSE 100 UCITS ETF GBP Dist
- Vanguard FTSE 100 UCITS ETF GBP
- SPDR FTSE UK All Share UCITS ETF
UK-regulated broker eToro can give you access to FTSE 100 ETF providers without you having to pay any commission.
3. Berkshire Hathaway - Best Investment for Long-Term Returns
Warren Buffet's Berkshire Hathaway (BRK.B) is one of the closely watched stocks of the current financial market. Over the past several years, the company has generated an average return of over 20% annually.
Berkshire Hathaway was initially established as a textile manufacturing company. Today, well past its humble origins - it has evolved into one of the largest conglomerates in the US, owning a diverse mix of other businesses.
The firm invests in stocks of other companies and has accrued huge positions in popular names such as Apple and American Express.
At the time of writing, the class A shares of the company are valued at $401,987. On the other hand, Class B (BRK.B) is much more affordable, at the cost of around $270 per share.
Since April 2020, the stock price of Class B shares are up by about 42%. The company's investments in the technology sector have been a big contributor to this rise in the share value over the last year.
The company has also brought back £24.7 billion worth of its shares over the course of 2020 - thus boosting its earnings per share.
4. SPDR S&P Software & Services ETF - Best Investment to Diversify in Technology Sector
The year 2020 saw the technology sector take a huge leap, backed by strong gains from giants such as Apple, Amazon, Tesla, and other companies. Currently, the industry is considered one of the best ways for long-term growth investment.
With that in mind, within the tech sector - there are several different sub-groups. For instance, we are looking for companies specialized in communication, software development, hardware development, digital marketplaces, and so on.
Of course, you can identify successful companies and invest in them individually. Alternatively, you can also gain exposure to the wider tech market by putting your funds in an ETF.
As you can imagine, the SPDR S&P Software & Services ETF focuses primarily on the software sector - with a net asset worth of $603.72 million. The fund tracks some of the most prominent technology companies in the US market - such as Adobe, Oracle, and EPAM Systems.
Over the past year, the fund has also managed to generate investors a return of 80.75%. If you are interested in allocating a part of your £200,000 into the tech sector, this ETF might be worth your consideration.
Read More: What Are the Top 7 Best Tech Stocks To Buy
5. Morgan Stanley Institutional Growth Portfolio - Best Investment for Growth Stocks
One of the most popular investment strategies is to identify growth stocks in order to aim for long-term capital appreciation.
For those unaware, growth stocks are companies that are expected to outgrow their respective markets. The main examples include Amazon, Tesla, and Facebook.
The Morgan Stanley Institutional Growth Portfolio is an ETF fund that targets long-term capital gains by investing in growth-oriented companies in the US.
The main focus of this ETF is to choose stocks based on their compelling business strategies and free cash flow. A majority of these firms also have large market capitalization. Some of the notable names in the holdings include Morgan Stanley, Square, Shopify, Uber, and Zoom.
Over the course of the past year, the Morgan Stanley Institutional Growth Portfolio has increased by over 86% in value. Moreover, the majority of the companies in the portfolio belong to the tech sector, which might drive up prices further in the future.
6. Real Estate Select Sector SPDR Fund – Best Investment for Real Estate Diversification
If the stock markets are too volatile for your liking, you can also look into investing in real estate. However, the main challenge here is finding a property within your range of £200,000. Even if you manage to locate one, you might be left with no room for diversification.
This is why it might be better to consider an ETF that tracks real estate companies. Instead of buying a property outright, you will be tracking the performance of the US real estate market.
The Real Estate Select Sector SPDR Fund invests 95% of its total assets into the companies listed in the Real Estate Select Sector Index. This index seeks to represent the real estate sector of the S&P 500 Index.
In other words, instead of diversifying into the stocks of all companies in the S&P 500, you will be allocating your funds only to real estate. In turn, you will hold shares of real estate development agencies and REITs - such as the likes of American Tower Corporation, Prologis Inc., Crown Castle International Corp, and more.
Similar to other ETFs, the Real Estate Select Sector SPDR Fund is also weighted. Meaning - a percentage of its capital is invested into each holding of the ETF, in the order of its performance. For instance, in this index, the American Tower Corporation is given the most weightage - at 12.69%.
Compared to investing directly into the real estate market - putting your money into such an ETF can be beneficial in many ways. For one, you can get access to liquidity any time you want - without having to go through the hassle of selling your property. On the other hand, you will also be able to receive a dividend yield distributed by the respective companies.
7. Ethereum - Best Alternative Investment With Long-Term Potential
Cryptocurrencies have been performing exceedingly well over the past year. Ethereum is only second to Bitcoin in popularity - with its prices increasing over 3,000% over the course of the last 12 months.
That said, beyond its underlying price, this digital asset also has several other utilities.
For instance, one of the major trends in the crypto space is the rise of DeFi projects.
As it happens, a majority of these are developed on the Ethereum blockchain. There is a lot of investment that is going into DeFi at the moment, and as a result - this digital coin might also see an increase in its price.
That said, it is important to remember that the cryptocurrency market is much more volatile than the stock market. In other words, this means that if you are particularly risk-averse, then this asset might not be the right choice for you.
On the other hand, if you are focusing on long-term gains and willing to patiently wait out the short-term losses, Ethereum might be a good addition to your portfolio.
8. Gold - Best Investment for Hedging
Gold is respected across the world as one of the most attractive assets to invest in. It can not only act as a diversifier, but the metal can also be a powerful vehicle to mitigate losses in times of market downturns.
In other words, gold can serve as a hedging tool against inflation.
However, investing a part of your £200,000 in gold does not mean that you have to purchase gold bullions or bars. Instead, today, you have easy access to this precious metal through ETFs.
The most reputed ETF providers such as SPDR tracks the value of gold while giving you access to liquidity. Investing in such funds allows you to cash out your assets at any given time.
Another innovative way to invest in this commodity is through gold mining companies. This option will also allow you to benefit from increasing stock prices and potentially dividend payments distributed to investors.
If you are interested in either of these approaches, you can invest in gold ETFs through eToro - with a minimum investment as little as $50 (about 37 pounds).
9. Silver - Best Commodity Investment
Although gold is the asset primarily used for inflation hedging, silver is another commodity that can offer you the same benefits - but at a cheaper rate.
As an investment vehicle, silver has been performing well over the past year. In August 2020 - the price of this metal spiked to an eight-year high, hitting $29.11. This might not appear as much, especially when compared to gold.
However, in a matter of one year, silver has managed to increase in value by over 60%. This offers a feasible opportunity for those who want to consider investments other than gold for diversifying their portfolio.
In addition, silver is also an industrial metal which is widely used in the manufacturing sector. It is at the forefront of several innovative developments - ranging from medical equipment to technological applications.
With its demand expanding rapidly, the price of silver might also rise substantially in the upcoming years.
As with other commodities, you do not have to directly purchase silver in its physical form. Regulated brokers can give you access to this metal through ETFs that track the price of silver.
10. Permanent Interest Bearing Shares (PIBS) - Best Investment for High Yields
When it comes to high yield investments, it is often rare that they are accompanied by low-risk levels. After all, the thumb rule is that if you want to chase large returns, you have to be willing to take enhanced risk.
However, if you are looking to find a lower risk investment that can get you an above-average yield - then the answer would be Permanent Interest Bearing Shares (PIBS).
These are financial vehicles that are issued by building societies. Typically, these come with a fixed interest rate, and in many ways - are very similar to corporate bonds.
In fact, PIBS is a means for UK building societies and banks to raise funds from investors. The returns will be distributed in the form of coupon payments every quarter or twice a year. Although the interest rate is fixed, the running yield will depend entirely on wider market conditions.
Also, similar to bonds, you will not be able to get your principal investment back until the maturity date of the PIBS.
That said, it is essential to note that PIBS are only as secure as the societies issuing them. Therefore, if you are able to find competent and stable building societies, then you can get a relatively high yield for lower risk.
If you need examples, you can look at the PIBS issued by reputed providers such as Nationwide Building Society or Investec Bank. Typically, the returns from these fall within the range of 6 - 8%.
You also have the Halifax PLC and Skipton Building Society that will pay out much higher returns, in the range of 10 -12% or more.
That said, given the rising popularity of PIBS, you will now have to pay a premium in order to invest in them. At the moment, there are only a few brokers that can give you access to PIBS - among which the most notable one is the famous Hargreaves Lansdown.
How to Invest £200K UK - Choosing the Right Assets
When listing the best assets for your £200,000 investments, we have made it a point to offer you a diversified menu of financial instruments.
This is to ensure that you can gain access to high-yield investment options while mitigating the overall risk of your portfolio. That said, before you start making any investments, it is crucial that you do your own research. This will require you to have a good understanding of the financial market.
In this section of our How to Invest £200K UK Guide, we will discuss how you can choose the right securities for your investment portfolio.
The choice of preferred assets varies from one investor to another. While some might have long-term financial goals in mind, others might want to opt for investments that give short-term benefits.
For instance, many growth stocks project high returns in the long run. However, only a few of them offer any dividend payments. As such, you will have to wait for a few years before being able to cash out your profits.
On the other hand, bonds might offer you very low capital gains, but they might give you a steady interest rate.
In other words, by mixing your assets, you will be able to balance poor returns from one security with better returns from another.
Controlling the Risk
It is practically impossible to make investments that come with absolutely no risk. However, that does not mean you can't control the level of risk you take.
When quantifying risk, you can take several factors into account - such as the financial standing of the company and the volatility of the respective markets. Companies with large market capitalizations and steady balance sheets are considered more secure than small-cap companies in emerging markets.
That said, some sectors also have the reputation of being riskier than others. For instance, the cryptocurrency market is considered one of the highest-risk investments. This is mainly due to its fluctuating prices. Put otherwise, the risk is closely associated with the volatility of an asset.
As such, when considering how to invest £200k UK, it is important that you diversify your investments to minimize your exposure to one market or asset.
Even if you have a perfect plan to diversify your assets, it is always a good idea not to invest your £200,000 all at once. Instead, you can consider spacing out your investments over time - with a strategy known as dollar-cost averaging.
In this method, you will invest a fixed amount of money at regular intervals.
For instance, suppose you want to invest £10,000 in a stock. Using dollar-cost averaging, you will invest £2,000 each month over the course of five months.
This allows you to limit the risk of investing all your money on a single asset while it is at a high price.
Additionally, if the market is to crash immediately after you invested the entire £10,000, you will lose a large sum of money. By spacing your investments, you can keep such risks to a minimum.
That said, as you can imagine, dollar-cost averaging works best for assets that are most volatile. It is not necessary that you should take this approach for every investment - such as for a fixed-term deposit.
How to Invest £200K UK - Why Should you Diversify?
In the financial market, diversification is a strategy wherein you invest your funds into different assets from multiple sectors. By doing so, you will be able to have better control over the volatility and risk of your portfolio.
A typical diversified portfolio will have several assets ranging from fixed income products as well as high-yield investments. For instance, you can spread your investments across stocks, ETFs, bonds, and commodities such as gold for hedging against market stress.
On the other hand, if you want to make sure you have access to liquidity at all times, you can replace bonds with good dividend payers - such as blue-chip stocks.
In simple terms, the idea is to make sure you are not exposed to the risks of a single asset. Instead, if you are to make any losses from one investment, the returns from the others should be able to help you keep a balanced portfolio.
Check Out: Top 21 Stocks to Buy Now
How to Invest £200K UK - How to Select your Online Broker
Our How to Invest £200K UK Guide has armed you with all the important points you need to know before investing your money. Once you have decided which assets you want to add to your portfolio, you need to look for a trustworthy broker.
The best brokers in the UK market are licensed by the FCA and can give you access to thousands of tradable assets. In this section of our guide, we will tell you how you can identify these brokerage platforms that will allow you to invest in a cost-effective manner.
License and Regulation
One of the first steps is to make sure that the broker you select is fully regulated by the FCA.
The Financial Conduct Authority is the institution in the UK that regulates the financial markets. If your chosen broker is licensed by the FCA, then it is required to:
- Segregate client funds from the working capital of the business.
- Comply with KYC, AML, and CTF regulations.
- Submit for regular audits.
- Be transparent about the risks of investing.
In addition, most FCA regulated brokers will also be covered by the FSCS protection, up to the value of £85,000.
To give you an example, online broker eToro is regulated by the FCA in the UK, and CySEC in Cyprus, and ASIC in Australia. The platform is one of the most reputable brokerages in the online space, with millions of users across the world.
Support for Assets
If you want access to the widest choice of assets, you should make sure that your chosen broker supports different securities across multiple financial markets. This will allow you to manage your portfolio effectively through a single platform.
For example, UK broker eToro can give you access to not only the UK markets but also to several global exchanges.
This way, you have the option to diversify in international economies as opposed to concentrating your investments in the domestic UK marketplace. Moreover, eToro also allows you to purchase all these securities at a 0% commission rate and no stamp duty.
Fees and Commissions
Most online brokers charge you a commission on each investment you make. This will vary from one platform to another, depending on the capital you want to invest in.
For instance, let's say your chosen broker charges you 1.3% in commission per position. This means that, on your £200,000 investment, you will have to pay £2,600 as a commission when you buy your chosen assets.
Suppose, when you are cashing out, your investment is now worth £300,000. Once again, you will have to pay a commission of 1.3% - translating to an amount of £3,900.
As you can see, this fee can easily add up - eating away at your profits.
However, in contrast, you also have brokers such as eToro, that charges you no commission for making any investments.
Support for Payment Methods
The best brokers in the UK will allow you to make deposits through a debit/credit card or via a bank transfer.
If you want to make deposits or withdrawals using an e-wallet such as PayPal or Neteller, this is supported by eToro.
How to Invest £200K UK on eToro
By this stage of our How to Invest £200K UK Guide, you should have a fair idea of how to pick the right assets for your portfolio.
Now all that is left for you is to start investing. As we mentioned before, today, you can invest comfortably through an online brokerage platform with a few clicks.
To show you how easily you can get started, we have created a detailed step-by-step guide on opening an account with commission-free broker eToro.
Step 1: Open an Account
To create your online investment account, visit the eToro website. You can join the platform by providing your email address and choosing a password. eToro will also require your full name, date of birth, address, and phone number.
Being an FCA-regulated broker, eToro requires all its user accounts to be verified. This means that you will have to provide a copy of your passport/driver's license, and a utility bill, in order to verify your address.
In case you are not planning to transfer more than $2,250 (around 1,600 pounds) right away, you can complete this step for later.
Step 2: Deposit Funds
Before you can make an investment, you should fund your eToro account. This is an easy step considering that eToro provides you several ways to process your payment.
This includes credit/debit cards, bank transfers, and e-wallets such as PayPal, Neteller, and Skrill.
Step 3: Find the Asset you Want to Invest in
With your account funded, you have everything in place to start with your first investment. Now, you can proceed to find the securities you want to buy.
The most convenient way to do this is to use the search bar on top of the page.
For instance, if you want to invest in the stocks of Amazon - you can simply enter Amazon or AMZN in the search bar.
When the search results appear on the page, click on the 'Trade' button to proceed.
Step 4: Make your Investments
At this stage, you are all set to make your first investment.
You can either choose to type in the number of units you want to purchase or the amount you want to invest.
Make sure you check everything once more before you confirm your order. When ready, click on the 'Open Trade' button to complete the investment.
eToro will then immediately execute the purchase of your order without charging you any commission. You can then find the investment within your portfolio.
How to Invest £200K UK - Conclusion
In this How to Invest £200K UK Guide, we have covered all the important aspects you need to know about investing your money.
Considering the low interest rates currently offered by UK banks, it might be best to look at alternative investments that can pay you a higher yield. That said, the key here is to diversify across multiple markets - spreading your capital across a mix of different sectors, assets, and, if possible, economies.
Most importantly, before you take the plunge, you need to have a firm understanding of the risks you are taking.
With that in mind, if you are looking to invest your £200,000 in the most convenient way, FCA-regulated platform eToro allows you to do that on a 0% commission basis.
eToro – Best Broker to Invest 200K Pounds UK
eToro have proven themselves trustworthy within the industry over many years – we recommend you try them out.
67% of retail investor accounts lose money when trading CFDs with this provider.
Which is the best way to invest £200k?
It is important to consider what your financial goals are when thinking of how to invest £200k UK. This includes what kind of potential returns you want to make, as well as the level of risk you are comfortable taking. With that in mind, it will be best to diversify your assets across multiple markets.
Is it the right time to invest in the tech sector?
The technology industry has been performing well over the past year. It has an impact on almost every aspect of our lives, transforming how businesses function across every sector. As such, the technology sector could continue rising in value for the foreseeable future - which might make it a lucrative addition to your portfolio.
Can I invest £200k only in shares?
The stock market is perhaps the most popular way of investing. That said, there are also several other ways to build a portfolio. In order to make the most of your investments, it will be best to diversify your assets - across ETFs, bonds, and individual stocks.
What returns can I expect from a £200k investment?
The money you make from an investment will depend on several factors - such as the current market performance and volatility. There is practically no way to predict this accurately. However, you can gain an understanding based on the historical performance of your chosen asset.
Are ETFs a good investment choice?
ETFs allow you to diversify your portfolio by investing your £200,000 in multiple securities through a single investment. You can find ETFs for virtually any asset - including stocks, indices, bonds, REITs, commodities, and even cryptocurrencies.