Why invest a lump sum of money?

Leaving money in the bank may often mean that its value falls in real terms.

There are many reasons why people may suddenly find they have a lump sum of money – proceeds from the sale of a property or business, pension encashment, inheritance or even a lottery win. Whatever the reason, it is common to ask whether it could be better to invest a lump sum rather than saving it in a bank account. Investing can offer numerous advantages, such as potentially greater returns. It is always important to remember that investment decisions should be made based on your financial goals, risk tolerance and individual circumstances.

What are the potential benefits of investing a lump sum?

Potentially higher returns: Most bank savings accounts currently offer lower interest rates than the rate of inflation. What this means is that if you put your money in the bank, its value will typically decline in real terms (i.e. factoring out the impact of inflation). Investing in assets such as equities and bonds may potentially provide higher returns over the long term, helping you preserve the real value and grow your wealth.

Investment management: You don’t need to be an expert in stock markets to invest. At Wealth & Asset Management, we specialise in ‘discretionary’ investment portfolios, which means that a dedicated investment manager can make investments on your behalf to make your money work as hard as possible. They can create a personalised investment portfolio based on your unique circumstances and goals that is tailored to your capacity for risk.

Diversification: Investing allows you to diversify across different types of assets, reducing the risk associated with having all your money held in cash. Diversification can help protect your wealth in case one investment performs poorly.

Income generation: Some investments, such as dividend-paying stocks can provide regular income. This can be especially beneficial if you want to supplement your existing income or enjoy a comfortable retirement.

Tax advantages: Depending on your jurisdiction and the type of investments you choose, there may be tax advantages to investing your lump sum. For example, certain retirement accounts or tax-efficient investment strategies can help reduce your tax liability.

Work towards long-term financial security: Investing a lump sum wisely can help contribute to your financial security and future needs such as buying a home, paying for education, or retiring comfortably.

Philanthropy and giving back: If you want to use your money to make a positive impact on society, investing can help grow your wealth over time, allowing you to contribute more to charitable causes or organisations that you care about.

What do I need to take into consideration when investing a lump sum?

Investment objectives: Understanding your objectives and risk tolerance are important because it will help you make investment choices that align with your comfort level and financial goals.

In summary, investing a lump sum may offer the potential for higher returns and wealth preservation compared to leaving the money in a bank account. However, it’s essential to carefully consider your financial goals and risk tolerance, and to seek professional guidance when making investment decisions if you are new to investing.


Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.