How should you invest 100K?

The stock market still continues its bull run and property prices have reached all time highs. Not even the Covid-19 virus could stop them. In fact there’s not been a real dent in either market since they both went down circa 2008. 14 years and counting. Surely there must be one around the corner. So in this crazy climate how should you invest £100K?

Sit in cash

To be honest, you’d be forgiven for waiting on the sidelines in cash for the invariable plunge to materialise and then wack it into the market when prices are lowest. Unfortunately a couple of problems with that approach come instantly to mind. Number one being inflation. Every second of every day your savings sit in cash their value is being eroded. According to the consumer price index (CPI) UK inflation was 4.2% last year. That means you’d have lost over 4K by not investing your 100K. Not the best way to grow your wealth I’m sure you’ll agree.

A bigger problem comes from the fact that nobody knows when the next big crash is going to come. It could be tomorrow, it could be next year or it could be 10 years from now. It really is anybody’s guess. Yes, there are’s a never-ending supply of so called financial professionals and economists predicting the precise day the markets will turn red, but unfortunately history shows they don’t have anymore of an idea than we do. Not to mention the fact that for everyone predicting a crash, there’s another one predicting that markets will continue up.

And even if you did fancy yourself as a bit of an oracle, not only do you have to decide when to get out of the market. You also need to predict the optimum moment to get back in too because make no mistake, there are plenty of people who’ve gotten out by luck at an opportune time, only to never get back in again.

And here’s the crux, most of the time stocks and house prices go up. This means, if you aren’t invested you are missing out and it usually doesn’t take long for markets to more than surpass their previous all time highs. More often than not, people get in when the markets are high and get out when they are low, losing a fortune along the way.

Be invested all day everyday

No, the best thing you can do is be invested all day everyday. And in fact, because markets tend to spend a whole lot more time going up than they do going down, it usually makes sense to invest the money as soon as you have it rather than drip feeding it. Yes, drip feeding makes sense if you are adding from your salary every month but not if you have a lump sump ready to put to work. Sitting on the sidelines with the portion you are yet to drip feed is just like sitting in cash. Inflation is devaluing your balance and the markets more often than not are getting away from you. So how should you put your money to work?

Well, you should diversify across assets so that if one takes a battering one or more of the others will take up the slack.

Investing all your money in one go in a single stock or asset class may be a mistake, at least in the short term, but investing in a range of assets should provide the peace of mind you need that your money is protected.

Property investment

Right now mortgage rates are still very low and I would be very tempted to take advantage of that. Borrowing money, leverage, gearing or whatever you want to call it is one of the best ways of juicing returns available. A 10% return on 10K nets you 1K, but a 10% return on 10K plus 30K from the bank (totalling 40K) gets you 4K. Borrowing money has in fact turned that 10% return into a 40% return. In all likelihood mortgage interest and associated fees will eat into that, but you’ll be sure to get a lot more than if you hadn’t borrowed.

Of course this could all work in reverse but as long as you can maintain your mortgage repayments and wait patiently for the market to recover, which it always has, you shouldn’t have a problem.

And by the way, the situation would be very different if you borrowed money to invest in the stock market. Spoiler alert, I’m coming to stocks next and I do think you should invest in them, but just not with borrowed money. Borrowing money to invest in property is far less risky. There’s a reason bank’s don’t lend you money to invest in stocks. Your property is safe as long as you don’t miss a mortgage payment. But with stocks the amount of money you borrow is always based on the value of your investment portfolio.

If the markets drop too much, the value of your portfolio won’t be high enough to justify your loan, so your lender (broker) will demand you add money to your account and/or sell some or all of your stocks. Imagine, a repeat of 2008. It would be bad enough to see the value of your portfolio cut in half, never mind to be told by your broker you need to find a big chunk of money a.s.a.p to stop them from selling your investments. Not to mention the fact, when markets are hit like that the ripples in the economy could impact your work situation. Plenty of people using leverage on stocks lost it all in 2008.

So I’d use 25K as a deposit on a 100K property so I could take advantage of low cost, relatively safe leverage. Half an hour or so on Rightmove has just turned up a nice selection of city centre one bedders that look like they will provide a 5-6% gross yield. Fees will make that more like 4% but if we expect house prices to grow (historically 5% looks like a good figure) then we should be getting a decent enough return with our first chunk of cash.

Stocks and Bonds

The rest of it, I’d probably stick in the stock and bond markets. These days anybody with a brokerage account can put together a globally diversified portfolio of stocks and bonds with just a couple of exchange traded funds (ETFs).

Historically stocks have gone up more than property, you can get access to your money in minutes (rather than months with property) and you have the added benefit of diversification.

That’s because with a good brokerage account you can easily invest in thousands of stocks in one click through a low cost index tracker like iShares MSCI ACWI ETF or Vanguard FTSE All-World UCITS ETF that lets you invest in over ninety percent of the investable market with one click. You get little pieces of all the businesses around that world that matter, rather than a single property on a single street in the UK!

Bonds are the safe aspect of an investment portfolio. They give you some protection. They don’t go down hard in the bad times so your investment portfolio won’t be hit as hard. In fact, the government variety has a habit of going up in value when stock markets crash. No matter whether or not they do next time, you’ll still be able to sell some to raise cash to buy cheap stocks when the markets crash.

(We’ve compared a brokerage accounts here if you don’t already have one and recently talked about investing in stocks and bonds in a bit more detail here & here if this topic is new to you)

Gold investment

If I really wanted to cover all based I might keep back 5K to invest in gold as a kind of insurance just in case the markets really did melt down this time.

Some people like a certain Warren Buffet have a problem with gold because unlike shares in businesses and property it doesn’t generate any real cash flow, but plenty of others like the boss of the biggest hedge fund in the world, Ray Dalio think it should be an essential item in everybody’s investment portfolio. (I’ve talked more about this here)

Again, the easiest way to invest in gold is to open a brokerage account and purchase ETFs, but there are other options, such as buying your own gold coins. In fact, it is even possible to invest in gold back cryptocurrency these says if you are that way inclined.

Cryptocurrency investment

Which brings me onto an optional extra that I might be tempted with if I was a little more adventurous and that’s cryptocurrency, or in particular Bitcoin. Yes, a lot of naysayers claim it’s worthless, and they could well be right, the price could drop to zero tomorrow, but then again, over the last 10 years more and more people, companies and institutions have drunken the Kool-aid and it’s been rocketing up in price, blowing all the above mentioned out of the window. Some very clever people believe in it, so turning your nose up at the blockchain may turn out to be a big mistake.

Essentially, it may rocket out of orbit or it may come crashing down to zero, so a small position, say 1-2% makes sense to me. (I’ve written about the impact of investing such an amount in crypto here and also how to make a crypto investment here if you aren’t sure)

How should you invest 100K – The bottom line

So based on the above as a minimum I’d invest in property, stocks, and bonds, but may add a little gold and crypto if I was feeling adventurous and really wanted to cover all bases.

Having already allocated 25K to property, that would leave 75K for stocks and bonds. I’d further split those using the 4% rule. That’s 4% into stocks for every year I was investing. Most people should be investing for the long term which I see as around 20 years so that would be 80% stocks and 20% bonds or in this case 60K in stocks and 15K in bonds, but if your timeline is different alter accordingly.

But, if I was adding gold 5K and crypto 2K I would still allocate 15K in bonds (because this is the safe part of my portfolio), which leaves 53K in stocks.

Either way, I’d feel pretty confident going forward.

The above breaks down as follows:

For 3 assets

• Property 25K
• Stocks 60K
• Bond 15K

or for 5 assets

• Property 25K
• Stocks 53K
• Bonds 15K
• Gold 5K
• Crypto 2K