Investing a windfall

As reward for their impressive achievements, our gold medallists will each receive R400 000 from the South African Olympic committee. As an investor you may receive a lump sum in the form of a performance bonus, an inheritance or even the lotto. What is i

When you receive a windfall there is nothing wrong with using a small percentage of the money to reward yourself, especially if it forms part of a performance bonus, but the real rewards come from making the windfall work for you over the long-term.

Rather than spending the money on a new car or an expensive overseas holiday and blowing this unique chance to get yourself financially on track, decide how this money can help you meet your long term financial goals:

· Do you have expensive short-term debt that you need to pay off such as personal loans or car finance?

· Do you have medium-term obligations such as your children’s education that you need to provide for?

· Have you assessed your retirement provision? Could this windfall assist in reducing your short-fall?

Each of these needs have a different investment strategy:

Divert debt into savings: If you pay off your short-term debt, make sure you divert those monthly debt repayments into a saving plan rather than taking on further debt or using that money to raise your living expenses.

Understand your time horizon: If your goal is short term you would need to consider investing in a lower risk investment such as a money market or income fund. If you need to fund your children’s education in five years’ time you would want to invest in a product with a medium risk profile such as balanced unit trusts which will provide growth but limit your risks.

Maximize your tax benefits: If you decide to supplement your retirement, it may be tax beneficial to top-up your company retirement fund or pay a lump sum into your retirement annuity if the proceeds are from a performance bonus. However, if the proceeds are from an inheritance, you may wish to invest it in a more flexible vehicle as part of your discretionary retirement funds as the tax benefit may be less important.

Whatever your decision, it is important that you make the best choice both in terms of reaching your goals and selecting the appropriate product. A financial adviser would be able to guide you through these decisions and also help you focus on your long term goals when the temptation may be to blow it all on the car of your dreams.