Investing a lump sum

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These are some ideas I passed on to a friend recently about taking a first step into investing in shares:


I was told that you have a lump sum of cash and are considering how to invest that for yourself and your children. I have some ideas on how I would deal with this which I can share with you. 

Interest rate returns on cash are very low at present. We get 1.10% on our instant access savings at the moment. This could be increased to 1.60% by committing to a 5-year bond, but price inflation is 2% (CPI measure) or 3% (RPI measure) so you are losing money in real terms. Therefore, I would only hold cash savings for immediate needs or as an emergency fund to cover 6 months of spending.

After providing cash savings for immediate needs and for an emergency fund I would invest in company shares. My preferred way of doing this is to invest in investment companies (also known as investment trusts).  I/We have invested in this way for many years and have achieved overall growth of 8% per year. This means that you can double your money every nine years. Individual years can vary, however, for example from a 23% loss in 2008 to a 27% gain in 2009, so you should reckon on staying invested for 5 years so any losses can probably be recovered.  

Here is a short video about investing in investment companies: Your investment journey.

The Association of Investment Companies (AIC) say that “Investment companies are a way to make a single investment that gives you a share in a much larger portfolio. A type of collective investment, they let you spread your risk and access investment opportunities you wouldn’t find on your own.” More information is available on the AIC website.

In order to invest you will need to choose a wrapper (investment account, ISA, pension, etc), and select an investment platform, before choosing an investment company or companies to invest in. If you are a first-time investor then a large global or UK investment company may be best. Here is an example of each that we hold or have held in the past:

F&C Investment Trust   They say that “the Trust is highly diversified and cautiously managed, with exposure to over 450 individual companies from around the world.”

City of London  They say that “the Company’s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange.”

Please let me know if you are interested in finding out more.


Small print: This is information not advice and it may not be appropriate to your individual circumstances.

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