The best ways to invest your lump sum wisely (2024)

Whether you want to use it to buy a house, put it towards your children’s education, or even simplysave itforthefuture, there area number of lump sum saving and investment options immediately available to you.

Thankfully, we’re on hand to breakthings down, so here is our guide on how to spend a lump sum wisely.

What is a lump sum?

You can come across a financial windfall when one or more of your sources of income, or another source altogether, pays a large single sum of money to you.

This could come from winning the lottery, inheriting, a redundancy payment or drawing on your pension, for example.

Lump sums differ from other ways of saving.

While some savings willoffergradual returns, lump sums are larger amounts that can collectively earn a lot more interest.

This means that with the right saving strategy, not only will you be able to put your lump sum towards your priorities,butyou will alsobenefit from theadditional interest.

How to prioritise your lump sum?

Everyone’s financial situation is different, meaning thatdecidinghow to use your lump sum ultimately rests with you.

Thedecisionwill depend on the size of your windfall,personal circ*mstances, and how muchrisk you want to take on.

If you have around £10,000, are lookingto save towards your retirementand prefer to save your money with little risk attached, you may prefer to keep your money in a savings account.

If you have a larger amount and don’t mind taking on a little more risk, you mayachievebetter returns investing your money directly.

Repayingdebts

One of the biggest priorities many peoplehaveis paying off debts of various kinds.

Some debts, such as credit card debt, can quickly begin to multiply when not repaidon time, so oftentimes, thefirst priorityis to resolve any outstanding payments that you may have.

If you’re looking totake control of things like credit card debt, lump sums can go a long way towards improving your financial situationand relievinga lot of stress.

How to invest a lump sum

Investingalump sum isone of the more popular ways for people who are more comfortable with higher levels of risk to invest larger amounts of money.

Higher risk means your chances of greater profits are also higher, so risk isn’t always a bad thing.

It’s important to only invest amounts of money you are comfortable with, andinto investments that you are confident of.To understand moreabout investing money, you should speak to an adviser.

While the top savings accounts currently beat inflation, many people instead choose to invest in stocks, shares and potentially bonds as abetter way to generate higher returns.

Each different investment you make will have a different level of risk, and your returns will varyas a result.

Butas a general rule,wait at least five years before taking out your lump sum, as this allows savings to build,interest to accrue, and your investment time torecover any losses it may have incurred.

Regardless of what you choose to invest in, there are some effective ways to reduceyour risk.

As thereare different kinds of risk,it’s important to understand what potential downsides there are to each investment.

But if you come into a large financial windfall, you may want to split this sum into two halves, with one part invested into stocks and shares and the other into a safer savings account.

Learn more: what is CFD trading?

Build emergency savings

Howeveryou choose to invest your lump sum, it may also be a good idea to build an emergency savings pot.

Typically, an emergency savings pot should cover about three months' salary and be quickly accessible so that you can use it whenever you need it.

These kinds of savings will cover you in case of unforeseen circ*mstances, such as redundancy or illness.

Always check with your employerabout itsworkplace illness policyand the eligibilitycriteria, buthaving emergency savings to support you in times of need will give you a little more peace of mind.

Saving with a savings account

If your lump sum is a smaller amount or you would prefer to save your money towards certain priorities,a simple savings account might be the better option for you.

Cash savingsare always popular with people who want to put away a lump sum and earn interest over a long period of time.

This can be a very good way to save for things without taking on bigger levels ofrisk. Savings accounts are much safer, buthow much interest you earn will come down toyourbank’s interest rate.

Saving with an ISA

Individual savings accounts(ISAs)are a particularly good way to savetowards ahouse purchase or retirement, or– with someparticularISAs– yourchildren’s future.

There area number ofdifferent ISAsavailablefor different savings purposes,and eachcaninvolvedifferent kinds offinancialproducts and savings amounts.

You could put your lump sum into an individual cash ISA, where you canearn tax-free interest onup to£20,000.

If you’re looking to save towards your first house, you could also considera lifetime ISA.

These ISAs allow you to put up to £4,000a yearinto a savings account, with a limit of £20,000.

LifetimeISAs were introduced with the explicit intention of helping18-40-year-oldssave towards their first homes.

So,if buying a house is your goal,this typeof ISAisa good option. There are alsojunior ISAsthat can helpwithsavingmoneytowards your children’s future.

TheseISAs let you save up to£9,000 a yearand canbe only withdrawn oncethe children are over 18.

If you're looking at making potentially larger gains (but at an increased risk), you could also consider .

Whether you’re looking to invest or save your lump sum,having a financial windfall at your disposal can helppay back debts,buy yourfirst house or save for your children’s future.

Investing, saving andbuilding for your future is important, so it’s vital thatas you’re makingdecisions about your financial future, you have the right advice.

Foryourexpert financial adviser,trustUnbiased.

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The best ways to invest your lump sum wisely (2024)

FAQs

What is the smartest thing to do with a lump sum of money? ›

Start paying off the debt with the highest interest rates and work your way down to the debt with the lower rates. If you cannot pay all your high-interest debt with your windfall, pay as much as possible and focus your attention on other high-interest debt.

What is the best way to invest a lump sum of money? ›

Systematic Transfer Plan (STP): Investors with a large sum to invest but wary of market timing can use STP. Here, the lumpsum investment is initially parked in a low-risk fund like a liquid fund and then systematically transferred to equity funds.

What is the best way to invest a large lump sum? ›

As there are different kinds of risk, it's important to understand what potential downsides there are to each investment. But if you come into a large financial windfall, you may want to split this sum into two halves, with one part invested into stocks and shares and the other into a safer savings account.

What is the best way to use a lump sum of money? ›

What to do with a large sum of money
  1. Step 1: Don't feel like you have to rush. ...
  2. Step 2: It's OK to spend a little. ...
  3. Step 3: Pay off high-interest debt. ...
  4. Step 4: Build up your emergency fund. ...
  5. Step 5: Save for short-term goals. ...
  6. Step 6: Invest it.
Jan 19, 2024

What is the safest investment for a large sum of money? ›

Safe assets are those that allow investors to preserve capital without a high risk of potential losses. Such assets include treasuries, CDs, money market funds, and annuities. There is, of course, a risk-return tradeoff, such that safer assets typically offer comparatively lower expected returns.

Do millionaires keep their money in cash? ›

Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. They establish an emergency account before ever starting to invest. Millionaires bank differently than the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth.

Where to park lumpsum money? ›

Where to invest money for the short term?
  • Bank savings accounts. Your savings account or your checking account is a no brainer. ...
  • Bank Fixed Deposits and Other Deposits. ...
  • Short term Debt Funds. ...
  • Arbitrage Funds. ...
  • Money Market Funds. ...
  • Fixed Maturity Plans (FMPs) ...
  • Gold ETFs. ...
  • Post Office Term /TimeDeposits.

How can I invest $10000 to make more money? ›

How to invest $10,000: 10 proven strategies
  1. Pay off high-interest debt.
  2. Build an emergency fund.
  3. Open a high-yield savings account.
  4. Build a CD ladder.
  5. Get your 401(k) match.
  6. Max out your IRA.
  7. Invest through a self-directed brokerage account.
  8. Invest in a REIT.
Apr 2, 2024

Where should I put $50000? ›

Here are 10 options to help you and your family use $50K to build wealth and financial stability over time.
  • Max out your retirement accounts. ...
  • Contribute to a health savings account (HSA) ...
  • Fund a 529 college savings account. ...
  • Stash it in a high-yield savings account or CD. ...
  • Invest in Treasurys. ...
  • Invest in an index fund.
Apr 11, 2024

How to double 20k? ›

But this is the nature of investing and passive income, so it's important to have patience and to trust the process.
  1. Invest In Real Estate.
  2. Start An Online Business.
  3. Invest In Stocks & ETFs.
  4. Invest In Small Businesses.
  5. Start A Service-Based Business.
  6. Try Crypto Investing.
  7. Retail Arbitrage.
  8. Lend Out Your Money.
May 1, 2024

Where is the safest place to deposit a large sum of money? ›

Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.

How much interest does 50k earn? ›

The potential earnings on a $50,000 deposit

Now, let's take a look at how much interest you can earn on $50,000 in one year with different interest rates: 4.25% APY: If you invest your $50,000 in a CD or high-yield savings account with a 4.25% interest rate, you will earn $2,125 in interest in one year.

How do you protect a lump sum of money? ›

How to Protect Large Deposits over $250,000
  1. Open Accounts at Multiple Banks. ...
  2. Open Accounts with Different Owners. ...
  3. Open Accounts with Trust/POD [pay-on-death] Designations. ...
  4. Open a CD Account, or Money Market Account, with a bank that offers IntraFi (formerly CDARs) services.
Mar 17, 2023

What to do with an unexpected large sum of money? ›

Paying down debt, investing the money or growing an emergency fund are all solid options that can bring you closer to your financial goals. Even if you opt to do nothing with it right away, there are savings alternatives to ensure that it doesn't get mismanaged in the interim.

Is it smarter to take lump sum? ›

Monthly payments over time are the format that most people associate with pensions. However, a lump sum payment can, sometimes, be the better option. Depending on what your company offers and what kind of returns you can pursue, you might collect more from your money in the long run by taking it all up front.

Is it smarter to take the lump sum or payments? ›

Lump sum distribution may be 'a mistake'

In many cases, the annuity is a better option because "the typical lottery winner doesn't have the infrastructure in place to manage such a large sum so quickly," he said. The typical lottery winner doesn't have the infrastructure in place to manage such a large sum so quickly.

What can you do with a lump of cash? ›

  1. Step One: Give Yourself a Small Treat. Your goal is to invest the vast majority of your newfound wealth such that it will provide lifelong benefits. ...
  2. Step Two: Increase Retirement Contributions. ...
  3. Step Three: Invest Your Money. ...
  4. Step Four: Make a Financial Plan.

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