hiriskpaul wrote:You could hold the whole lot in cash deposits, scattered around so you are within FSCS limits. But that is not safe in the sense that its real value will be stable - you could lose against inflation.
I would second GS's approach. Find risk assets that are acceptable to you and size your trade into those assets according to how much downside you are prepared to accept. X% into deposits, (100-X)% into something with a 95% probability (2 standard deviations) of doubling or halving in 5 years is a good way of thinking about it. For X=90%, you would have a 95% chance of your total portfolio being between 95% and 110% of what it is now in 5 years time, plus interest on the 90% deposits and a 2.5% chance of being somewhere between 5% and 10% (the maximum loss) down. Is that acceptable? If not, what outcome is?
There is another psychological issue that you need to consider as well. For example, if you invested 10% into something which halved in 3 months but don't need the money, how would you react? Would this give you sleepness nights? Would you bail out? If so, then you would not have sized your trade correctly. It is all very well saying risk investments deliver over the long term. Investors need the stomach to get to the long term.
I think the time period
over which the sum can be left untouched is very significant.
If one needed to draw out, say, £40k in three years, the number of acceptable investments shrinks dramatically.
If, however, for example, the sum could be left for ten years, a sizable equity risk premium, for absorbing the capital value volatility along the way, can be earned.