7 best ways to invest a lump sum wisely

28 March 2023

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If you have recently come into a large amount of money, such as an inheritance or a settlement, you may be wondering what to do with it. A lump sum can be a momentous opportunity, allowing you to build wealth and possibly change your life. However, it’s important to make smart choices to ensure you reach your financial goals. Here are some of the best ways to invest a lump sum.

Please note that all investment involves risk, and this is not financial advice, but instead general guidance. Diversification and asset allocation may not fully protect you from market risk. Past performance is not a guarantee of future performance and you may not get back the amount invested. Should you be in any doubt as to the risks involved, or to the suitability of a particular investment, you should seek professional financial advice.

1. Pay off high interest debt

Before investing, it’s essential to pay off any high interest debt you may have, such as credit card balances and personal loans. High-interest debt can quickly erode your wealth so it’s important to eliminate it as soon as possible. This can improve your credit score and save you money.

2. Build an emergency fund

However you choose to invest your lump sum, it may also be a good idea to build an emergency savings pot. An emergency fund is an essential component of a sound financial plan. It’s a cash reserve that you can use to cover unexpected expenses or income disruptions, such as redundancy or illness. Aim to set aside three to six months of living expenses in a high yield savings account or a money market fund. Having emergency savings to support you in times of need will give you a little more peace of mind.

3. Diversify your portfolio

Diversification is a key strategy to reduce risk in investing. By spreading your money across different asset classes, you can mitigate the impact of market volatility. Consider a mix of stocks and bonds and alternative investments, such as real estate or commodities. It’s imperative to consider, however, all investments carry some level of risk and it’s important to understand how much risk is appropriate for you and your goals.

4. Consider a financial adviser

If you are not comfortable managing your investments on your own, consider working with a financial adviser. A good adviser can help create a customised investment plan that aligns with your goals and risk tolerance. They can also provide ongoing guidance and help you make adjustments as your circumstances change, such as illness, retirement or birth of a child. This way you won’t need to make decisions about your investments day-to-day.

5. Invest in property

During a strong financial period, property can be a valuable addition to a diversified portfolio. This is a common way to create passive income. You can invest in rental properties, REITs (real estate investment trusts), or crowdfunding platforms. Property investment can provide a steady stream of income, there is a strong demand for rental properties and it may appreciate over time.

6. Invest in yourself

Don’t overlook the value of investing in yourself. Consider using some of your lump sum to further your education or develop new skills that can increase your earning potential. The best investment you can make is in yourself.

7. Find the right investment for you

RL360 offers a range of investment products such as Personal Investment Management Service (PIMS), a lump sum investment that has the flexibility to react quickly to changing market conditions and/or changes to your location or lifestyle without unnecessary restrictions, for more information please contact your financial adviser for more information.

Other investment opportunities include low cost index funds, bonds, annuity and dividend-paying stocks. There is a variety of different funds and deciding which one is right for you can be a long process. There are different levels of risk, levels of involvement and length of payments that can contribute towards which is the right one for you. Finding the perfect investment type can offer you peace of mind.