I have £x, what should I do with with it?

It can be quite daunting if you’ve suddenly come into a large sum of money, whether from an inheritance, selling shares or winning the lottery.

It’s understandable that you want to make the most of this opportunity, but rushing to make decisions you haven’t fully considered is one of the biggest risks you face.

Stop, take a breath 🛑

It’s likely that your windfall has been accompanied by an emotional roller-coaster; potentially grief from the loss of a loved one, or joy at having sold a company you built from scratch. Either way, it’s important to give yourself time to adjust to your new financial situation, and approach your decisions in a calm and considered way.

Make sure the money is an account (or accounts) where it is guaranteed to be held safely, and then forget about it whilst you take time to plan your next steps. Be prepared to spend a long time on this – long enough to get used to having the money and to research everything you need to. Depending on the size of the windfall and your existing familiarity with personal finances topics, this will probably be some weeks or months.

While you do your reading, leave the money intact. Don’t start buying cars, telling friends and relatives about your money, or start investing in whatever catches your eye thinking you are going to be the next Warren Buffett!

Where to store large sums of money 🏦

The most important first step is to ensure your money is held safely. You can then plan your next steps without feeling anxious that you might not get your money back should the institution(s) holding it fail.

Money held in a bank account is protected by the FSCS guarantee for up to £85,000 per institution. And in certain circumstances, a temporary high balance (up to £1m) will also be covered.

If you are not covered for a temporary high balance, and have over £85,000 to deposit, you can split your savings up across multiple institutions to benefit from the FSCS protection for each. Moneysavingexpert have a useful tool to ensure each account is covered by a separate FSCS guarantee, as some banks function separately at the high street level but share one FSCS guarantee between them.

NS&I Premium bonds are another popular choice, as they offer a monthly prize draw which provides an average return similar to a bank’s interest rate (although as prizes are allocated randomly and your actual results could be lower or higher). You can deposit up to £50,000 in premium bonds per person, and your money is fully guaranteed by HM Treasury. You can of course combine this with bank accounts to store more than £50,000 safely.

Another option is to open a Direct Saver account with NS&I which has a limit of £2m. As with Premium Bonds, NS&I is the Government’s saving bank and has the backing of HM Treasury, so any money deposited with NS&I is 100% guaranteed.

Have you seen the flowchart? ⬇️

As boring as it sounds, all this windfall will do is accelerate your progress along the flowchart. So it’s time to make sure you’ve got your day-to-day finances, savings goals, and retirement savings in order.

Our flowchart will walk you through this step by step.

How to invest a lump sum 📈

If you have already fully saved for any short term goals, or this windfall has covered all of your short term goals, then you will likely be looking to invest this money.

If this the the first time you are going to be investing, make sure you take some time to educate yourself first. Check out Investing 101 and our recommended resources as a good place to start. Take as much time as you need to learn the terminology and concepts.

If you already invest, then remember investing a lump sum should be no different to your normal investing strategy. However it can certainly be more daunting! You may feel more comfortable slowly moving your money into your investments by pound cost averaging. This protects you from the possibility of a sharp drop in the market the day after you’ve invested. Although you are statistically likelier to see a higher return by making a lump sum investment, the lower risk approach of pound cost averaging may help you sleep easy at night.

Should I repay some/all of my mortgage? 🏡

This is a common question. Repaying a mortgage can carry a big psychological benefit, and also provide a tax-free return equivalent to the interest rate you will no longer pay.

We have an article about overpaying your mortgage vs investing. Whilst it is aimed at regular overpayments, the thought process is the same for lump-sums.

Professional help 👩‍🏫

If you are uncomfortable managing this money on your own, you may benefit from employing an Independent Financial Advisor to help you through the process.

Don’t rush this process and keep interviewing financial advisors until you find one who feels like a good fit.

It’s generally recommended to use a Fixed Fee financial advisor, where you will pay them upfront to help you set up your finances, but will not pay them an ongoing % fee to manage your portfolio (this is typically charged at 1-2%). Make sure that the your financial advisor is working for you, and isn’t receiving commission from any banks or investment providers.

You may also want to seek legal advice to assist with estate planning such as setting up trusts.