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 don’t understand or 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 found wealth, and approach your finances in a calm and considered way.

Make sure the money is safely deposited in cash account/s and then forget about it for 6 months whilst you take time to plan your next steps.

Don’t start buying cars, telling friends and relatives about your money, or start investing thinking you are going to be the next Warren Buffett!

Where to store large sums of money 🏦

In certain circumstances, a temporary high balance (up to £1m) will be covered for 6 months in a standard bank account that is covered by FSCS protection.

If you are not covered for a temporary high balance, you can deposit up to £85k with each financial institution you use within the standard FSCS protection.

Another option is to open a Direct Saver account with NS&I which has a limit of £2m. Because NS&I is the Government’s saving bank and has the backing of HM Treasury, 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 before you start planning what you’re going to do with your windfall, make sure you’ve got your day-to-day finances in order. If you haven’t already – check out the flowchart.

How to invest a lump sum 📈

If you have already 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.

Investing a lump sum should be no different to your normal investing strategy, however it can be more daunting! You may feel more comfortable slowly moving your money into your investments by pound cost averaging to reduce the risk of a sharp drop in the market the day after you’ve invested. Although you will statistically 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.

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.

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 a mortgage. 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.

Again, 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 of your portfolio (typically 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.