How should I invest £20,000?

Moneywise believes in helping you save money so you can focus on taking your first steps on the investment ladder. Over the long term, investing money will produce far greater returns than you'll get from high street savings accounts.

With that in mind, our "How should I invest…” column aims to help beginner investors of any age and any financial background plan for their family's future by offering hints and tips from the UK's leading independent financial advisers on how and where they should invest their cash.

 Here we should you how to invest £20,000.

"The first question to ask is whether you should invest at all," says Patrick Connolly, chartered financial planner at Chase de Vere. He says clearing debts, repaying a mortgage and building savings should all be clear priorities. If you're certain the time is right to invest, you need to decide your goals, how long you can invest for, what access you need to your money and what level of risk you are prepared to take.

Connolly says if you're prepared to take some risk and to invest for at least five years, you should try to invest tax efficiently. "This usually means a combination of pensions and stocks and shares Isas," he explains. "Pensions provide initial tax relief at your marginal rate, so they can be more beneficial for higher-rate taxpayers but they are inflexible, meaning you can't get hold of your money again if you want it."

Stocks and shares Isas don't provide initial tax relief but can still be tax-efficient and you can access your money whenever you want it, he adds. "The current stocks and shares Isa allowance is £11,520 (rising to £11,880 in 2014-15), although this includes any money you put in cash Isas. However, there is nothing to stop you investing over more than one tax year."

He adds that when deciding whether to use pensions or stocks and shares Isas, or a combination of both, you need to balance the initial tax relief from pensions against the flexibility of Isas. Juliette Schooling Latter, research director at Chelsea Financial Services, also encourages married investors in particular not to overlook Isas. "A £20,000 lump sum is a substantial investment for most people," she says. "For those with a medium appetite for risk and an investment horizon of at least 10 years, if they are married they should consider using both their Isa allowances, which would mean all the lump sum is in a tax-efficient wrapper."

Schooling Latter adds: "£20,000 is also enough to warrant spreading the amount over a handful of funds."

Connolly agrees, adding novice or cautious investors might do well to consider multi-asset funds. Meanwhile, the medium-risk investor, with a 10-year-plus time horizon, could consider an asset allocation of 5% in commercial property; 10% in absolute return; 10% in bonds and 75% in equities, suggests Schooling Latter.

Andy Parsons, head of investment research at The Share Centre, explains: "Diversification is key as spreading money across a range of investments reduces exposure to market risk."


Patrick Connolly suggests novice or cautious investors consider multi-asset funds such as Cazenove Multi Manager Diversity or Fidelity Multi Asset Strategic.
Medium-risk investors could think about a tracker fund such as the HSBC FTSE All Share Index or a diversified equity fund such as Aberdeen World Equity or Threadneedle Global Select, he says.

Meanwhile, Schooling Latter - who favours a mix of commercial property, absolute return, bonds and equities for medium-risk investors, tips Henderson UK Property, Newton Real Return, L&G Dynamic Trust and Rathbone Global Opportunities.

The Henderson fund "has one of the highest yields in the sector at 4%+," she says. Newton Real Return "has achieved what it set out to do and has provided positive returns in all market conditions". She's not a big fan of bonds as she believes yields are set to rise and capital losses in the asset class will occur but she tips L&G Dynamic Trust as "a strategic bond fund with more flexibility to try to mitigate these issues". And she likes Rathbone Global Opportunities as "it invests in developed market equities".

Andy Parsons at The Share Centre adds that investors seeking growth who have more of an adventurous investment profile could consider a combination of the Standard Life Global Smaller Companies fund, the Legg Mason Japan Equity fund, the Schroder Recovery fund and the AXA Framlington UK Select fund.They all provide geographical and market-cap diversification and are positioned to benefit from both the UK and global recovery, he says.

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