A lump sum investment is basically one whereby you invest a large chunk of money into something. After all, a lot of people get a lump sum at some point in their life; they may have received a tax-free sum from their pension, sold their home, or inherited a windfall. When this occurs, most people decide to invest the money. With that being said, continue reading for some top tips on how to get the most out of your lump sum investment.
What to consider before making a lump sum investment
- Know your level of risk and potential return – The first thing you need to do is be honest with yourself regarding your position in relation to risk and potential return. How do you feel about risk? Different investments have different ups and downs, as well as different returns, and thus it is important to establish this to determine what investments you should consider.
- The benefit of time – How much time do you have on your side? Generally, you can afford to take more risk if you have more time, as you can ride out any down periods.
- Spread your money – You should never put all of your eggs into one basket when investing. By spreading your money, you are spreading the risk.
- Prepare for the unexpected – Finally, you need to be prepared for anything unexpected. Make sure you have emergency money handy should anything go wrong.
Top tips
- Put your money into a savings account – You are not going to be able to invest your money from the moment you get a lump sum inheritance or cash in on your pension, as you need to carry out important research. While you do this research, it is a good idea to put your money into a safe and accessible savings account whereby you can earn interest on it.
- Diversify – It is a good idea to keep a portion of the money aside for different investments to reduce risk. Litecoin and other types of cryptocurrency are popular options at the moment.
- Do a money fact find – Savings and investments must be in line with your goals and needs, which is why it is a good idea to do a money fact find to better understand your position. This involves looking at things such as how you feel about money and risk, what might be ahead in your life, things you hope to achieve, and how your current finances stand.
- Make your investment plan based on your situation – There is no one-for-all plan when it comes to investing. What is right for you may be disastrous for someone else. This is why it is crucial to create your investment plan based on your current situation.
- Seek professional assistance – It is always advisable to seek the assistance of professionals. They will make sure that you have an investment plan that is completely tailored to suit your current situation. They will also make sure you understand the risks involved. This is not something you should go into with your eyes shut.
- Proceed with caution – When you come into a large sum of money, you can be overly eager to invest and multiply the amount. However, patience and caution is a must. You can easily lose the money in question if you are not careful.
