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Smart ways to invest unexpected sums of money

12 March 2018Jo-Anne Bailey, Franklin Templeton Investments
Jo-Anne Bailey, Sales Director & Country Manager for Africa at Franklin Templeton Investments.

Jo-Anne Bailey, Sales Director & Country Manager for Africa at Franklin Templeton Investments.

We all dream of that phone call announcing that we’ve won a large sum of money, or inherited a small fortune from a distant relative, but do we really know what we would do with our unexpected windfall? While the temptation may be to go on the shopping spree of a lifetime, the smart thing to do would be to invest it in such a way that it sets you up for future financial growth.

Before your credit card starts working overtime, consider taking care of all of your debt so that it no longer drains your financial resources. If you don’t know where to start, tackle your debt with the highest interest rates first and pay-off your interest-free loans last. Mortgage bonds are often at the lower end of the interest spectrum, while credit cards are typically at the highest. The bottom line is, don’t throw good money after bad and ensure that killing debt remains your number one priority.

With that said, liquidity is also a key factor to take into account and we should always have access to an emergency fund should anything go awry. This is the smart choice because raising capital can be a costly affair, which can set you back.

If your debt is covered and you have liquid reserves on call, then it’s time to consider your long-term financial goals. Setting up an appointment with a qualified financial expert will assist you to establish your investment profile, so that if you have a meaningful amount of cash at your disposal it can start to work for you.

Before deciding on the asset classes you wish to include in your portfolio, carefully consider your risk profile. If you are close to retirement, low-risk investments are key, whereas if you are at the start of your career with many working years ahead, you can afford to take on greater risks that may translate into better returns. Ultimately, your asset allocation should be defined by your risk appetite, which in turn is driven by the time you have left in the market.

Always plan for market volatility by including a good spread of asset classes in your portfolio. In this way, your portfolio will retain its value even when disaster strikes. It’s also important to note that offshore investments must be factored into your portfolio, particularly given the current political and economic climate.

While making sure you are in a safe space financially, it’s always important to factor in the fun. Denying yourself will only lead to greater temptations to overspend later on, so don’t feel guilty about reserving a small percentage of your windfall for yourself and your family. Your long-term goals should, however, always remain at the top of your agenda.

In summary, should you ever receive that dream phone call, be sure to pay off your expensive debt first, set aside a liquid emergency fund that is permanently on call and then invest the remaining amount across a spread of risk appropriate asset classes. And last but not least, don’t forget to have just a little bit of fun with your unexpected windfall.

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