Sometimes in life, you come into a large sum of money all at once. Unfortunately, a windfall is often tied to an adverse experience like the death of a loved one or a serious illness. It can arrive at a time when you feel overwhelmed. What should you do to make sure you’re investing your windfall wisely?
Start by taking your time so you don’t make any rash decisions, says Michael Cave: “People do go crazy, and it’s always tempting to spend it all on holidays and cars – I’ve seen it happen before.” That will give you and your family some great experiences, but you should probably try to balance that with some more future-focused thinking.
“Before you get on a plane or buy a Ferrari, think about how many hours you’d need to work to earn that money,” Michael advises. “Make sure your spending fits with your long-term plans and that you don’t take on too much debt, by buying a huge house for example.”
Your investment strategy would depend on the amount of your windfall and your personal situation, but Michael gives an example of a client he thought did a great job of investing her $1 million inheritance:
“She paid off the remaining $400,000 on her mortgage, then put $300,000 into term deposits so she could plan what she wanted to do with it. The remaining $300,000 went into top-quality shares in the New Zealand stock market. The family has a holiday planned, she’s been able to choose a lower-paying job working for a charity, and both parents are able to spend more time with the kids. I was impressed by this family’s smart use of their windfall – they’ve enjoyed the money but also used it to protect their lifestyle in the future.”