Written by R. A. Stewart
If you have suddenly come into a lot of money such as from an inheritance or a lottery win then the first thing you need to do is to get financial advice. This is certainly applicable to those who have no experience at investing. A financial advisor will also advise you of the taxation issues.
There are some basic rules to making the most of your windfall which I am going to share with you.
Rule number one: Know where you are going
If you have no clue as to what your plans are for the future then you are likely to fritter away your windfall with the result that you have nothing to show for it. I have seen it happen! Financial planning requires vision. Making provision for the future is the sensible and the responsible thing to do. It will make life easier knowing that you have the funds available when some unexpected bill crops up.
A financial advisor needs to know what your intentions are with your windfall before they can help you. It is advisable to sit down with a pen and paper and write out your plans for the future.
Rule number two: Get financially educated
Lack of financial literacy is the most common reason for poor financial outcomes. With so much information on personal finance available there is no excuse for financial ignorance. Books written by New Zealand financial advisors such as Frances Cook, Mary Holm, and Martin Hawes are worth reading. Your local library may have one of their books available.
Improving your financial literacy will enable you to make more informed choices when it comes to investing your money.
Rule number three: Know the risks
When there is an opportunity to make a capital gain there is also the chance that you may make a capital loss, but calculated risks must be taken with your money in order to put it to work. The key is to take risks which are compatible with your time frame. The longer your time frame the more risk you can take on. Having said that, it does not mean retired people should not invest aggressively in growth funds if they understand that a market meltdown will result in their portfolio taking a hit.
Rule number four: Take responsibility
It is up to you to take responsibility for your choices. This also means not blaming others when your investments are not performing up to expectations. It is also up to you to take responsibility for your own mistakes and learn from them.
Rule number five: Don’t Leave your money in one place.
Diversify your investments according to your risk profile. This minimizes the chance of losing your money in one hit. This advice is more applicable in the internet age when millions of dollars are lost in banking scams. Don’t leave all of your money in an account which can be easily accessible online. It pays to have an account which is not connected to internet banking. This can be used for depositing large sums of money.
Rule number six: Invest your money
Inflation is the enemy of the conservative investor. Don’t just leave your money in an ordinary savings account; put it to work so that it is making you money. This does not necessarily mean you are taking unnecessary risks with your money. If you have a lot of money to invest there may be a temptation to invest in something offering interest rates at a much higher rate than the banks are offering. Do your due diligence with such offers. The higher interest rates on offer do not always reflect the higher risk which investors are accepting. This was the advice of some financial advisors prior to the Global Financial Crisis of the early 2000s. It fell on death ears as so many got their fingers burned with the collapse of several finance companies in New Zealand.
About this article
The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances therefore discretion is advised. You may use this article as content for your blog/website or ebook.
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