If you find yourself in the fortunate position of having a £200,000 lump sum to invest, it’s important that you go about it the right way.
No single product is going to serve you best, so you should be prepared to have a combination of long-term investment options and balanced asset location in order to make the most of your windfall.
A certified independent financial advisor should be able to explain options available to you.
First things first: Settle any Existing Debts
Before you rush to invest your cash, you should discharge any existing debts, starting with those that attract the highest interest rates.
Remember that you can tax-deduct mortgage interest, so it may not be best to pay off your home loan first should you have one, unless your interest rate is exceptionally high.
You should look into the terms of your mortgage, as you may be able to overpay to reduce the term length without any penalties. You could also perhaps look to increase monthly payments when you are able to remortgage if you are on a fixed rate deal.
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Place the £200k in a Temporary Money Market Account
While you are deciding where to place your funds, it can be helpful to place the money in a money market account. This will give you a competitive interest rate, while allowing you to write sizeable cheques.
Most banks offer these accounts, so it is worth enquiring in your local branch.
Think about Liquidity
It’s a good idea to keep some of your funds liquid and easily accessible in case of emergencies.
This will save you from having to access longer-term investments, which could cost you in charges and lost interest.
Spread your Investments
It is sensible to spread your money across a wide variety of different investments. This strategy protects you against market fluctuations.
Your asset allocation could include bonds, stocks, and pension funds. All of these longer-term investments give you some leeway if the market drops, as you will still have plenty of time for recovery before you need to access the money.
When choosing where to place your investments, diversify them across different industries to guard against one sector crashing.
Using mutual funds or ETFs in different sized companies, and putting some money into some stocks that pay dividends and some into growth stocks, will give your money the best chance of performing well for you and minimising risk.
Seek Financial Advice
£200,000 is a not inconsiderable sum and if you’re not confident investing on your own, it’s wise to seek advice from a professional.
The right investment for you will depend on your current situation and financial position. For example, you may or may not own property at the time of your windfall.
You should also bear in mind that investments can go down as well as up, and any past returns that were made on one investment cannot be seen as a guarantee of future returns.Last updated: November 17th, 2017