I have received a lump sum, should I invest it?

The question of whether to invest crops-up on receiving an inheritance, at retirement, or that stage in your life when you realise you have built-up significant savings. Your inclination is just to leave the money on deposit because investing is too risky. Risk means different things to different people and, if you’ve never invested before, the prospect looks scary. Many inexperienced Investors imagine they could loose all of their money and this article attempts to allay some of those fears.

Prudent guidelines

Investment is more of an art than a science, but there are some prudent guidelines that everyone should follow and the first questions you should ask include the following:

  • Do I have an adequate cash reserve; say a minimum of 3-months essential expenditure?
  • Do I have sufficient accessible savings for known shorter-term liabilities – education costs, replacement consumer goods, a wedding, a special holiday, etc.?
  • Should I repay my debts?
  • Do I have a clear picture of my financial future so that I can afford to tie money-up for 3 – 5 years?

If the answers to these questions raise any doubts in your mind, then think carefully before committing to any long-term investments.

There’s more on this topic in my companion blog – Statement of Investment Principles.

More detailed insights into investment risk are in my companion blogs, Understanding risk and What attitude to risk should I adopt?

Why should I invest rather than just keeping the money in the Bank?

If you have long-term savings – money you don’t expect to have to touch for 3 – 5 years or more – the decision to invest is a simple one really; it is a question of whether you want to keep ahead of inflation or not.

Of course, in the shorter-term, investment returns may well be less than interest and/or inflation, possibly, leaving you with less than was originally invested, which emphasises why you should only invest funds being held for the medium to longer-term – 3 to 5-years+.

What can I expect?

Qualified by, “past performance is not necessarily a guide to the future” the following chart shows that you are in for a bumpy ride!

The plot “A” is the IA 40-85% Equity Index, to represent a higher risk approach; plot “B” is the IA 0-35% Equity Index, to represent a lower risk approach; plot “C” is UK Consumer Price Inflation. What this shows is that, over the longer-term – this is 20-years – both risk profiles have beaten inflation, even with the upturn in 2022-23.

Investopedia goes into this topic in more detail in their article.

What next?

If you are embarking on a programme of investment for the first time or want to review your existing investments, talk to me today or complete the form below. I’ll take as much time as you want to understand your circumstances, what your hopes and concerns are for the future, what you need to achieve and by when. We’ll then establish what you attitude to risk and investment loss is before recommending a course of action. As a starter, I’ll give you a link to our risk profiling tool.

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    About Clive Barwell

    Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at info@clivebarwell.co.uk. Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.