The best places to put your savings, whether you are cautious, more adventurous, or happy to gamble

How would you invest a 10,000 lump sum? The answer is dependent on any number of factors, but ultimately it comes down to your attitude to risk.

If you are investing over the long term, for example, you may feel comfortable with the prospect of your money rising and falling in value over the short term. And if you already hold less volatile investments, you may be able to take more risk. While you will still want a spread of investments in your portfolio, they may all be riskier.

We asked four financial advisers what they would do with a 10,000 lump sum on behalf of three clients with different attitudes to risk.

The cautious investor
“If you’re very cautious, your focus is going to be on capital protection and you need to accept that you will give up most of the potential for capital growth to achieve this,” says Patrick Connolly, a certified financial planner at Chase de Vere. “The safest place to keep your money protected is in cash, though with cash savings rates so low, it is likely that you will be losing money in real terms when inflation is taken into account.”

For this reason, Jason Hollands, the managing director of Tilney BestInvest, says that even cautious investors should look beyond cash and consider other types of asset to beat inflation. He suggests “absolute return” funds, which seek to make a positive return whatever the underlying market conditions, usually by holding a variety of assets.

Be wary of investing in one type of company or geographical marketPatrick Connolly, a certified financial planner at Chase de Vere

“Many funds in the absolute return sector charge too much and deliver too little, but there are some decent ones,” Mr Hollands says. He suggests splitting the 10,000 between Aviva Investors Multi Strategy Target Return, Invesco Perpetual Global Targeted Returns, Newton Real Return and Standard Life Global Absolute Return Strategies.

Darius McDermott, the managing director of Chelsea Financial Services, agrees that absolute return funds are a good home for very cautious investors, although his recommendation is Church House Tenax Absolute Return Strategies: “It’s the type of fund that allows you to sleep at night.”

However, Mr McDermott says that even more conservative investors may feel comfortable holding a chunk of their portfolio in riskier assets, including equities, where there is scope for the greatest volatility, if there are less risky investments to balance this out.

In this case, Mr McDermott says, a good split for a cautious investor is to put 40 per cent of the cash into absolute return funds, 20 per cent into cash, 10 per cent each into property and fixed income, and 5 per cent into infrastructure. The rest would go into equities.

“The equity portfolio could be split between UK equity income and global equities, with funds such as Woodford Equity Income and Fidelity Global Dividend,” Mr McDermott says.

“I also like Legg Mason IF RARE Global Infrastructure, Henderson UK Property and Jupiter Strategic Bond for fixed-income assets; in the absolute return bucket, we would split the 40 per cent between the Church House fund, Smith & Williamson Enterprise and Premier Defensive Growth.”

The balanced investor
This is someone comfortable with taking a little more risk, with more ups and down, in the hope of earning a better long-term return, but with an eye still on capital preservation.

“One question is whether you should hold this investment within an Isa,” says Philippa Gee, the managing director of Philippa Gee Wealth Management. The tax-free allowances on savings and investment income are quite generous at present, so investors hoping for long-term capital growth may be glad of the shelter that Isas provide from tax on profits.

“Unless you plan to use the allowance for another purpose, it could be worth investing the money through an Isa,” Ms Gee says.

Balanced investors will still want a spread of different types of assets, with less risky investments that provide some stability when the riskier holdings are proving more volatile. To make the balance, investors often rely on real estate, whose value appreciates over time and is not subject to the same market volatility as stocks and other forms of investment. Firms like Estate & Letting Agents Clitheroe tend to assist such investors to find the kind of property that is ideal for a balanced portfolio.

Ms Gee suggests investments in Ruffer Total Return and L&G Multi-Index, which invest across several different asset classes and prioritise capital protection, as well as more traditional stock market funds, such as Newton Global Income and Invesco Perpetual Global Equity Income. These latter funds focus on shares in companies that pay above-average dividends – this income may provide some comfort during periods of challenging capital performance.

Church House’s absolute return fund is one that lets you sleep at nightDarius McDermott, the managing director of Chelsea Financial Service

Mr Hollands holds a similar view. “A more balanced approach will involve exposure to asset classes beyond equities, to reduce volatility and introduce a combination of income as well as growth investments,” he says.

“While equities 1might represent up to 60 per cent of such a portfolio, you should include some exposure to bonds, property and potential alternative strategies such as absolute return funds, commodities or infrastructure.”

The risky investor
If you can handle greater risk levels, your strategy should be more aggressive – that is, more of your money can be held in funds that are likely to deliver greater volatility, but stronger long-term returns. You will still need a portfolio approach that offers some protection when individual investments go wrong.

“Invest in companies of different sizes, in different sectors and in different parts of the world,” advises Mr Connolly, who says risk-takers will hold most, if not all, of their money in equities. “I’m certainly wary of investing in only one type of company or geographical market.”

His suggestion is to split the 10,000 between four funds: Liontrust UK Smaller Companies, BlackRock European Dynamic, Schroder Asian Alpha Plus and Fidelity Emerging Markets. “You would expect higher weightings to emerging markets and smaller company funds,” says Mr McDermott, who thinks this portfolio should be 90 per cent in equities with the remainder in absolute return funds.

“For UK equities funds consider Unicorn UK Smaller companies or Marlborough UK Micro Gap Growth. In the US opt for Hermes US SMID Equity, with Rowe Price European Smaller Companies, and in emerging markets Aberdeen Latin American and Ashburton India Equity Opportunities.”

Ms Gee is keen that investors also consider investment trusts – stock market-listed funds that can be a good way to invest in a range of international companies, as well as in more specialist investments.

She picks Alliance Trust, Scottish Mortgage Investment Trust, Witan Investment Trust and Lindsell Train Global Equity for consideration.

Finally, Mr Hollands says risk-taking investors should focus on global equities, including shares in companies in developed and emerging markets.

“The Scottish Mortgage Investment Trust is fairly unconstrained, or a more diversified global equity trust is Foreign & Colonial Investment,” Mr Hollands says. “Blend a couple of funds to achieve coverage across both markets, for example, by investing 85 per cent of the money in Fundsmith Equity and 15 per cent in Fidelity Emerging Markets.”