How To Invest A Lump Sum
Investing money is exciting. There are a lot of emotions to deal with. The thrill and anticipation of good returns. The worry of things not going so well. The good feeling you get when you set some of your money aside for your future. The problem is just where to put it. There are so many lump sum investment options out there. But perhaps we are getting ahead of ourselves. Let’s perform a pre-investment check…
Before making any lump sum investment, it is important to make sure your current standard of living is secure. That’s not just those with young families but also those who are single with high levels of expenses and few assets to fall back on. This means having an emergency fund.
An emergency fund is a strategically held sum of cash in a bank account outside of your country of residence. Pre-COVID standard advice was 3-6 months expenses. Now it may be longer as uncertainty in the job market and ability to move around the world freely is limited. The cash is there to reduce the possibility of there being a need to raid your long term investments for short term expediency.
Lump Sum Investing
Lump sum investment is the bringing together of two parties. One who is seeking a better return on their money. The other who is looking to raise money for a project. The project could be anything. The borrower will look to get the lowest possible interest rate or profit share as possible. The investor will try and get the highest return for the investment being made. This competition for the investor’s capital creates a market.
If the investor can find another project with the same risks but better returns or the same returns but lower risk, they will invest in that project. Equally, if the borrower can secure funding for a lower rate or profit share, they will take it. Why is this important? It is important because if an investment is offering a high rate of return, there will almost certainly be a high level of risk. If you are unable to identify the risk or are not comfortable with the level of risk, you should not invest. Lump sum investment is ultimately about managing risk.
For a detailed article on expat investing click here.
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