If you have recently gone through a big life event, then you might be set to receive a lump sum. But do you know how to go about investing it effectively to ensure that you’re able to maximise it to its fullest?
Perhaps you received your windfall from a divorce settlement, accident claim, or redundancy package. There are obviously other reasons for receiving a lump sum, yet no matter the cause, you are likely to have had a difficult journey getting to where you are now.
But now that you are on the other side of this life event, and you’ve received this lump sum, you may need help planning for your financial future, so that you can make the most out of the money you’ve received.
First things first
Take a step back and avoid quick or rash decisions. Start by putting your money into an accessible savings account. This will give you a chance to carefully plan and research what to do next, whilst gaining a little interest on your money.
Do be mindful of your protection limits though. The Financial Services Compensation Scheme (FSCS) can protect you up to £85,000 per eligible person (£170,000 for joint accounts), per bank or building society if they were to fail. Although it is worth noting that they do provide a higher level of £1million for up to 6 months after depositing a qualifying temporary high balance. You can check you are protected with this handy tool.
Once you’ve got a temporary home for your lump sum, take your time thinking about what you need from your investments. Consider what you hope to achieve, how you feel about money and risk and what might be coming your way in the future. This will allow you to choose the most appropriate, sustainable and affordable investments.
Once you have that figured out, you, along with the help of a financial planner can start to build your investment plan.
Here is a list of the key things you should consider when building your investment plan:
What are your needs and goals?
The amount of money you receive will largely determine where you are best investing it, but there are other things you need to take into consideration, such as your values, aspirations and life goals. This is something you may not have thought much about when it comes to making financial decisions, but it should in fact be the leading driver behind these decisions.
What level of risk do you want to take?
The general trend is to start with low-risk investments like Cash ISAs, then proceed to add medium-risk investments if you are willing to accept higher market volatility. If you don’t need the money in the short-term, then it is worth considering if you want to buy stocks and shares as this is the best way to protect your money from inflation but comes with additional risk.
Don’t forget to spread your money across different assets and even geographical areas. By diversifying your investment strategy, your portfolio will have a lower associated risk. The aim is to spread your investments so that you are not overexposed to one area. Well diversified portfolios will benefit from a broader range of performance over the longer term.
How involved do you want to be?
If you enjoy making investment decisions, then you may well want to take charge of your investments. However, it can be quite time-consuming and difficult to decide on the right investment strategy or funds for you. At this point, you should consider working with a professional financial planner that will be able to use their expertise to help you create an investment plan carefully tailored to your goals and values.
Review, review and review again…
It is important to review your investment performance yearly and make any necessary changes to your savings that will help bring you closer to your goals. Remember, the markets fluctuate all the time so don’t be tempted to act on unexpected rises or falls.
How we can help
When you receive a lump sum, our main bit of advice to you is to spend time thinking about what you want, and what you can afford. This shouldn’t be rushed, and we can help you with this process.
Our job is to help you clarify what it is that you want to achieve, review your entire financial situation and forecast your wealth over your lifetime. All of which, will then enable us to create a bespoke investment plan for the money you received, with clear and easy to understand steps for you to follow.
Arguably, the most important part of our service is the ongoing advice that ensures your plan remains on track to achieve your goals. Your financial planner will regularly review your plan, making suitable alterations as your situation and needs change, without you having to worry about a thing.