That’s the £10,000 question isn’t it: “I have saved 10K pounds/dollars – what do I do with it?
It seems that the main problem these days isn’t saving that amount, but what to invest it in?
From crypto currencies to wine/fine art, here are the 4 strategies that I would invest £10,000:
Invest in Stocks: the most passive form of investing that provides great long-term returns.
Invest in Property: more active in nature but provides capital growth and monthly cashflow.
Invest in Business: much more active in nature but can provide you with uncapped income.
Invest in Yourself: active in nature to further educate/upskill to be more valuable to clients.
In this article, I will go through each of these investment options to paint a realistic picture.
I will go through the pros and cons of each option, as well as how active or passive they are.
Finally, I will share what I would do – which if you know me – involves a bit of all the above!
Let’s Start with Stock Market Investing
It’s no surprise that stock market investing comes first on my list, specifically index investing.
Index investing involves investing in index funds using a platform in tax advantaged accounts.
Let’s go through a scenario of what could happen using the MYB Early Retirement Calculator.
I need to make some assumptions: 10% annual growth over 10 years invested only in stocks.
If that’s all you invested, and contributed nothing else, you could have £26,000 in 10 years.
Using a 5% withdrawal rate, you could have an annual income of £1,300/year over 30 years.
The pros of this strategy is that it’s passive, very passive; you just set it up once and forget it.
In reality, you’d probably be contributing every year so you could expect even more returns.
The cons of this strategy is that it’s slow and unpredictable: stocks are volatile (but not risky).
As well as that, this form of investing doesn’t give you a regular income, except once a year.
Let’s Move on to Property Investing
Property investing comes next on my list but may probably come first on a lot of people’s list.
This strategy involves purchasing a property and then renting out that property for a profit.
With £10k, you couldn’t buy a property, but use it as a deposit, let’s say 10% of the total price.
Which means you’d need to take out a mortgage for the rest i.e. let’s say £90k of the £100k.
Based on the current data, you could take out an interest-only mortgage for say £500/month.
Assuming you rent it out for £1,000/month, you could make around £500/month in cashflow.
The pros of this strategy are monthly reoccurring income from a property that can be scaled.
Also, the property itself increases in value over time, roughly doubles in value every 10 years.
The cons of this strategy is that £10k may not even be enough for a deposit, and other fees.
Also, unless you’re paying an agency to manage your property, it will take time and money.
Tell me about Business Investing
Business investing comes next on my list, which unless is your main job, may be a side hustle.
Business investing is about solving a problem for people for a profit using a product/service.
Let’s say for example you are a very creative artist and want to start a customisation business.
You may use the £10K for materials/supplies, equipment, courses, packaging, software, etc.
Let’s say after a while you make £1,000/month in income selling customised products on Etsy.
Let’s say after materials and other expenses, you’re left with a monthly profit of £500/month.
The pros of this strategy is that it doesn’t take much capital to start a digital online business.
With all the software, social channels, and resources out there it is easy to get started quickly.
On the other hand, starting a business is tough, there is no guarantee that it will work out.
Not only that, but it takes a while to start making a decent income, maybe even a few years.
Let’s talk about Investing in Yourself
Finally, investing in yourself comes next on my list, which may be surprising for some people.
Investing in yourself is all about acquiring new skills/knowledge that’ll make you earn more.
Let’s say that you are an engineer with a decent salary but are looking to make more money.
You use the 10k and pursue a master’s degree in cyber security, artificial intelligence, etc.
After education, you have now gained a qualification in a field that is much more lucrative.
After a year/two working in the field, you could be making 3x what you were making before.
The pros of this strategy is by investing in yourself, you become more valuable to companies.
As a result, you can exponentially increase your active income in a short amount of time.
The cons of this strategy is that even after your education, you may not find work in the field.
Even if you do, starting off you would probably get paid less due to your lack of experience.
Which Strategy should you go for?
This really depends on your goals: how passive do you want to be, what are you good at, etc.
Note: it’s not black and white, you can pick multiple strategies i.e. one active and one passive.
For example, stock market investing is as passive as it gets – you set it up once and forget it.
Therefore, you could work on a business or get further education to increase your income.
But how would this split work? After all you only have £10,000 to invest, what would you do?
- This depends: some businesses only need £1,000 start-up costs, so you could invest the rest.
- Further education might only be £2000 whereas a masters degree might cost the full amount.
- You could spend it on property investing education and use other people’s money to invest.
Me personally, that’s what I would do: focus on one passive and one active form of investing.
Invest in myself to grow my active income and invest in the stock market for passive income.
To find out more about early retirement, check out our articles on retirement and investing.
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