The Finance Blogger

How to invest a financial windfall 

How to invest a financial windfall You have just received some money and you want to know how to invest a financial windfall. Develop an investment strategy based on your risk tolerance. Not everyone can tolerate the wide swings in the stock market. If you are the type to lay awake at night and worry about the value of your investments as the market response to various world events you probably should not be in the stock market. At the very least you may want to invest in solid blue-chip stocks that only pay dividends and have little opportunity for growth or decline.

Your growth and income requirements over the lifetime of your investments should also be considered. It is much better to start when you’re going towards saving for retirement. However if you have only 10 or 15 years to retirement you may want to be more aggressive with regards to your investment strategy.

How to invest a financial windfall

The following broad guidelines should also be considered as part of your investment strategy for your financial windfall.

Diversify across industries and within industries. You might be familiar with one industry or you got a hot tip from a friend. Ignore these temptations and focus on protecting your investment by investing across industries as well as within those industries. Never replace all of your money in one company or investment.

Diversify between the stock market and the bond market. The bond market is actually larger than the stock market in terms of total amount of money invested. You should consider investing in bonds to receive a steady income of interest payments.

Invest money in bonds using a bond ladder approach. When you invest in bonds, they should have a laddered maturity dates. In other words you want each one to mature in a different year so that you never have all of your money maturing in a low interest year.

Save some cash for a rainy day and for emergencies. Your windfall is a great opportunity to make sure that you have some cash set aside for emergencies. There may come a time when you need some cash to cover the debt or emergency expense. This emergency fund will come in handy.

If you have not already got the message, never put all of your eggs in one basket. This is the most important advice in this entire post. You have just received at financial windfall. You want to make sure that it continues to provide you with income investment equity for a long period. The best way to do this is to make sure it is invested diversely.

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