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Five Investment Strategies for Windfall Situations

Investment Strategies and Sudden Gains (Such as Tax Returns)

 

If you find yourself with unexpected money, you may also find yourself with questions. For many, receiving an unexpected sum of money is exciting – but it also requires a strategy. Investment strategies for these life experiences don’t have to be complicated; it can be helpful to review the concepts below.

Here’s more to ponder: thinking beyond tax season, the National Endowment for Financial Education found that almost 70 percent of people who hit it big will find themselves in the same situation they were in before obtaining that money.

Recently Forbes asked a dozen investment advisors about investment strategies for windfalls. Here are their top tips to keep in mind:

1. Pay Down Your Debts
While it isn’t as fun as going on a shopping spree, paying down certain types of debt is vital for a brighter financial future. (Note: some debt is good debt. Credit card debt is never good debt. Talk to an advisor about which debt is good and which is bad.)

2. Make Fact-Based Decisions
The first reaction after receiving a windfall might be to spend, spend, spend. However, to sit and do nothing aside from developing an investment strategy is probably your smartest option. Rather than focus on short-term expenditures that satiate your shopping itch, think long-term.

3. Hold on to It
If you have no real debt to speak of, put some of the money into the bank. We never really know what life will give us, which is why setting aside enough to cover three to six months of expenses (“emergency fund”) is wise.

4. Invest It
Before you invest your windfall, you need to ask yourself a couple of questions: is my emergency fund in good shape and are my debts paid down? If you can answer yes to both, consider investing in accounts like an IRA or brokerage account. There are many different options, so talk to an investment advisor about what’s best for you.

5. Addressing Risk
For those who are immediately thinking long-term with this windfall, it’s reasonable to look down the line and assess when you think you might actually start spending this money. You need to assess the risk associated with various investments so that you have a chance at compound returns, yet the risk is low enough so that it will be there for you when you need it. There are also taxes to consider, so talk to your investment advisor about which options fit your goals.

Windfalls can cause a flood of emotions, which we all know is not the best state to be in while considering financial decisions. Do yourself a favor and hold off on making decisions and contact your investment advisor about steps you should consider.

At Family Investment Center, we’ll talk to you about your goals and how this windfall can work toward those goals. Contact us today and let’s build a solid investment strategy together.

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