A lump sum is a single payment of money, in contrast to a number of payments made over a period of time. For example, a lump sum payment could be when someone has ten year’s worth of monthly mortgage repayments left, yet they decide to pay it off in one go. Therefore, a lump sum investment is when someone invests a substantial one-off sum.
Now you know the lump sum meaning, it is important to stress that this form of investing needs to be handled differently to an investment whereby you make regular payments. Therefore, below we have put together some top tips on how to invest a lump sum.
- Get an advisor – First and foremost, it is always advisable to use the services of a lump sum investment consultant, such as Taylor Brunswick Group. They will be able to put together an investment plan that is perfectly suited to your situation and will help you to achieve your goals. With so many investments to choose from, expert advice is necessary to ensure you make the right decision.
- Look for different options – It is important that you know the options that are available to you. Three of the most popular are investment funds, bonds, and shares. The latter is units of ownership in a business. Therefore, your profit relates to the performance of a company. Investment funds represent a collective investment, whereby your money is pooled in a readymade portfolio with other investors. Bonds are money on loan to a government or company. You will receive a fixed rate of interest, and the government or company will repay the capital on the due date.
- Figure out your timeframe – It is important to decipher the time you have available to you. The more time you have on your hands, the greater risk you can afford to take.
- What do you want the money to do for you? – It is important to outline your goals before an investment plan can be put together. Without having a clear vision, you and your advisor will not be able to effectively decipher what investments are right for you.
- Your lump sum relative to your existing savings – You also need to consider the size of your cash lump sum in regards to your existing savings. If the lump sum is rather small, then it is always best to invest it all at once, no matter where the money came from. A figure to work on is 20 per cent. If your lump sum is 20 per cent or less of your savings, invest it in one go.
- Consider how the lump sum was obtained – The source of the lump sum is important. If the money was won or inherited, it can be wise to invest a portion now, and then invest again over the next few years, as this spreads out the point of entry risk. Nevertheless, if the money was acquired via the sale of a property of a business, then there was previous risk attached to it. Although the risk was not directly related to the stock market, you should consider allocating at least a portion of the cash to bonds and stocks based on your requirements.
Managing Partner in Taylor Brunswick Group. A Hong Kong-based wealth-management firm that offers expert wealth management advice that will increase the potential to maximize growth for any individual or businesses.