Lump sum investment

Lump sum investment

There are many reasons why you may have a lump sum to invest, maybe you have downsized your house, received a good bonus at work or had an unexpected windfall. What ever the reason it is well worth avoiding the temptation to fritter the lump sum away. The old saying states you need money to make money so make sure you use the opportunity to invest the lump sum so that it can make you money in the future.

Where to begin with making a lump sum investment?

As with any investment you should first try and define your goals. Understanding how much risk you want to take with the money will be crucial to picking the correct lump sum investment. Once you have defined your risk appetite you can begin assessing different investment options to see which one is most likely to maximise potential returns while at the same time, not over exposing yourself to too much risk.

If you are relatively new to investing then one great place to start is the Dr Hanne Dreyers investment formula. This is an investment system that Dr Hannes spent over 25 years developing and practising through is business and real estate empire and ended up being the subject of his PhD. In it Dr Hannes explains how all the successful investors like Warren Buffet manage to invest without risk with the help of his formula. The formula acts like a seive and basically lets you filter out the good investments from the bad. Follow this link to learn more about Dr Hanne's investment formula.



Deposit Savings Accounts

These may not be the best choice if you are looking for high returns. However they will provide a very safe place to put your lump sum. If you do not require instant access to the money deposited you will receive a much more favourable interest rate. Finding the best deal can be tricky however with the recent emergance of online comparison sites finding the best deal has become a lot easier. Many banks offer higher rates if you make payments to the account regularly or only have access to your acocunt online. In addition you may lose interest payments for a particular month if you make any withdrawls. All of these kinds of features should be considered when choosing the right account to meet your needs.

Bonds, Treasuries or Guilts

Another great option when making a lump sum investment is to invest in fixed income securities. These are securities issued by governments , companies or financial institutions who effectively want to borrow your money. In return for you money they will guarantee to pay you a set coupon or interest rate each year. Typical bonds have fixed lifespans (say 5 years) at the end of which you will get your initial investment (notional) value back. Fixed income securities are a good, relatively safe way to invest a lump sum, offering you both a guarantee to your lump sum and a predefined, guaranteed interest rate.

Unit Trusts

A Unit Trust is an open ended pooled investment scheme that is divided into units with each unit representing a fraction of the total underlying investment. Unit trusts allow individuals to invest in a professionally managed fund that inturn invests in a wide selection of equities, bonds, property, pretty much any form of financial investment. The funds are usually themed so they might focussed on producing high growth as opposed to income, or it may focus only on ethical investments, or a particular geographical region. Investing a lum sum is a great way for the less experianced investors to gain exposure to the stock/bond markets if they do not have the experiance to manage their own funds. Obviously there is a management fee to be paid and as with all investments in the stock markets the value of you investment may fall as well as rise.

Investment Trusts

Investment trusts are similar to Unit Trusts in that each one will be focussed to a particular region or sector. However unlike unit trusts they are individual companies in their own right and like all other companies they have a finitie number of shares in circulation that can be bought and sold on the stock market. Costs are generally lower than with unit trusts. Investment trusts, because they are companies can borrow capital (from banks, otherr companies etc) in order to fund some of their investments. THis is known as gearing, The effect is that in a rising market they can often provide returns in excess of the debt repayments and therfore provide more value that will result in the price of their shreas (and your lump sum investment rise).

It is important to research the market carefully when considering any lump sum investment. If you are unsure you should always consult a qualified and experienced financial adviser.