Smart money: How should I invest a sudden financial windfall?

By London & Capital | 25 Apr, 2023

A sudden financial windfall is an exciting prospect for anyone. Maybe you’ve won the lottery or received a large inheritance. You might have sold your business after a lifetime of hard work or cashed in on a family property. Whatever the source, there’s a temptation to start making big plans when a financial windfall comes your way.

The future may suddenly be brighter, but taking time to stop and think, particularly about investing, is likely to benefit you in the long run. Choosing to invest your windfall rather than spend it could be the smartest move you ever make. Protecting your financial future would give you lasting peace of mind and make sure you benefit from your good fortune for longer. Investing may not be the glamourous option, but it is definitely one you should seriously consider.

Investing can seem like a simple thing these days. The proliferation of DIY options that raise the prospect of substantial gains from a few taps of a button gives the impression that no expert insight is needed. This couldn’t be further from the truth. Anyone looking to invest a significant amount should seek out a competent wealth manager to make sure their funds are in good hands. Financial markets are complex and while access in the modern world may be easy, seeking professional investment management is still a wise option.

Stick to the basics

The fundamental principles of good investing revolve around diversification and long-term thinking. A healthy portfolio will need to avoid concentrating all its assets in a narrow basket. Ensuring that your portfolio has a variety of asset classes and you are invested across a selection of industries and geographies can guard against downturns in particular areas. It is also important to have a strategy that you stick to over time. Financial markets can go up and down on any given day, but having a set strategy in place and being confident in your view means you are more likely to ride out any short-term storms. Flashy advertisements may promote rapid day-to-day trading, but positioning your portfolio for the long term can be more beneficial.

Adopting these investment fundamentals does not necessarily mean your entire portfolio should be low risk. Sitting down and discussing your appetite for risk with your wealth manager can make sure your portfolio is tailored to your priorities. Some people may feel that they are happy with low and steady returns, while others may want to allocate more of their assets to slightly riskier, but potentially more profitable areas. Equities and bonds tend to be staples in an investment portfolio, but there are plenty of alternative options such as investing in hedge funds, private equity funds and commodities. Anyone who receives a windfall will also have to give serious consideration to the amount of cash they want to hold. Cash is flexible and convenient, but can be vulnerable to having its value eroded by inflation or foreign exchange swings. Making sure you approach cash in a sensible way is an important part of good wealth management.

Follow the cycle

Anyone receiving a windfall and looking to invest should also consider the cycle of the market. A market downturn could mean that it is more advisable to consider some defensive assets. Defensive assets, as opposed to cyclical assets, are less impacted by economic vulnerability. Investing in energy companies could be seen as more defensive as people need to heat their homes no matter the health of the economy. Alternatively, a jewellery retailer could be seen as a cyclical investment as people are more likely to buy its luxury goods if the economy is doing well and disposable income is plentiful.
Using a professional investor’s invaluable market experience will ensure you utilise your windfall in the most effective way. If you’d like to know more about how London & Capital invests for its clients, get in touch with the team today.

To get in contact with London & Capital, please give us a call on +44 (0) 207 396 3388 or click here.

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