Ask the Experts: What's the best way for me to invest £5,000 for up to five years?

1 August 2017

Q

I have £5,000 that I want to invest to get the best possible return over the next three to five years. I also want to be able to pay in £30 to £50 a month. I think my best option is a Stocks and Shares individual savings account (Isa), and I am prepared to take on some high-risk investments in order to get a good return because I am not relying on this cash for future needs. How do I set up an investment Isa and which would you recommend I look into?

From
BS/Norwich

A

As a starting point you need to decide what you want to achieve, how long you are planning to invest and how much risk you are prepared to take. This will help you decide the most appropriate investments for you.

Before investing, you should make sure that you have paid off any expensive debt and have enough money in cash to cater for any short-term emergencies or requirements. This will stop you going into debt or cashing in your investments at the wrong time if you need to get hold of some money quickly.

If you are investing over a short time period, certainly less than five years, then you should stick with cash, even though interest rates are at historically low levels. This is because if you invest in the stock market and it falls in value, you will have very little time to claw back any losses. So you’ll need to give this some thought.

If you are able to invest for a longer period, then you are being sensible in looking at Stocks and Shares Isas. You should look to diversify investment risks either by investing in funds that hold a wide range of shares or by also investing in other asset classes such as fixed interest and property alongside shares.

If you’re happy to make your own investment decisions, there are many places where you can go online and set up a Stocks and Shares Isa. However, you will be fully responsible for any choices you make. You should also be aware that charges and service levels can vary significantly between Isa providers, so you should look around before making a decision.

In terms of possible investment choices, you could consider a low-cost option such as a UK tracker fund, which will give broad exposure to the UK stock market. I like the HSBC FTSE All Share Index fund. You can spread risks further by selecting a global equity fund, which will invest in companies listed around the world. Good choices could include Rathbone Global Opportunities or the Witan Investment Trust. Or if you want to adopt a more cautious approach, and don’t want all of your money going into shares, you could consider the Investec Cautious Managed fund. This fund spreads risks by investing in shares, but also into other asset classes such as fixed interest and gold.

Patrick Connolly is a certified financial planner at Chase De Vere