Show Your Lump$um Some Love


By Rory Rostant
Corporate Communications Manager, Reputation Management
Unit Trust Corporation

A precious chance to improve your financial situation.

What happens if you suddenly find yourself in receipt of a large sum of money? Would you take early retirement? Take a well-deserved cruise? Adopt a charity? Receiving a lumpsum can be very exciting and exhilarating. But figuring out what to do with this additional amount of money can also be stressful, especially if you aren’t comfortable making sound financial decisions.

Many of us would be intimidated with managing any kind of windfall. What you need now is to control the urge that leads to negligent spending or investing in an ad hoc manner. It is
suggested that you take a few months or even a year to decide how you’ll use the money, especially if the lumpsum is tied to the death of a family member, a severance package or even
winning the Lotto.

Here are some critical questions to consider:

What is your current financial situation?

Maybe you’ve never had a financial plan or lived on a budget. But having a complete picture of your financial situation will help you determine your short- and long-term goals and keep your focus on a positive track. Everyone’s goals are not the same, but it is important that you know and understand
yours. By making an honest assessment of your financial condition and assessing the level of risk you are willing to take, you can take away some of the fear. With a lumpsum, now is the time to dig deep and come up with a detailed plan. If you sit down and take an unbiased view at your entire financial situation, you will be in a better position to use your lump sum wisely.

Should you get professional advice?

A windfall may give you the opportunity to buy a home, live a comfortable retirement, save for children’s education or reach an investment goal. Maybe, you’re the type of person who will
read as much as possible about your options and ask the right questions. In this instance, you may not need expert advice.
But if you’re busy with your job, your children, or other responsibilities, or you don’t feel comfortable making important financial decisions on your own, then you may need professional advice. Even if a financial professional has been recommended by friends and others you trust, we encourage you to thoroughly evaluate the background of any financial professional with whom you intend to do business. The UTC team can help guide the conversation about your investment and help you identify ways to continue to save, invest effectively and generate wealth.

What’s your investment strategy?

Whether you put all your cash to work immediately or periodically invest portions at specific times (dollar cost averaging) your decision is based on your investment objective and risk
tolerance. Fully understand and prioritize your options, chief among them should be generating some sort of income from your lump sum, reducing your expenses and long-term wealth

Investing in a judicious mixture of mutual funds, equity and fixed income instruments, income-generating property, a business or dividend paying stocks, could all enable you to build a strong investment portfolio. For example, if your time horizon is 20 years, you can invest the lump sum of money into a mix of long-term investments, such as UTC’s Universal Retirement and Growth and Income Funds. These funds are specifically designed to provide investors with the potential of capital growth and dividend income. They are invested in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities.

Why not all your eggs in one basket?

This is dangerous and could lead to heartache. For any investor, the key to investing a lumpsum is to ensure that your portfolio is well-diversified, and one avenue is through a mutual
fund, which typically involves building a portfolio of stocks, bonds and cash or short-term deposits.
Such diversification allows you to limit your risks by reducing the effect of a possible decline in the value of any one asset class or security, so if one asset class or security under performs the others can offset the impact. By having a well-diversified portfolio, you can participate in the gains of the best-performing assets while being cushioned from declines in others.

The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk. Once you fully understand your options,
you’ll be in a better position to make good financial decisions.

What debts to pay off?

This should be a priority for anyone that gains a large lumpsum of money. Try to clean up debts such as credit cards that can carry a high interest, mortgage debt, car loans or even student
loans. Not only does paying off your debt free up your money but it could boost your retirement strategy. Consider investing in retirement instruments, such as the UTC’s Universal Retirement Fund (URF) or the Individual Retirement Unit Account (IRUA), ideal vehicles to consider as part of your retirement planning. They are key to preparing for retirement by
allowing you to achieve peace of mind in the golden years.

Lumpsum tips:

Resist the urge to splurge
Whether it’s an inheritance, bonus or redundancy pay-out, you should put it to work by making wise investments to secure your financial future.
Diversify so you don’t put all your eggs in one basket.
It can easily be squandered on frivolous stuff.
If overwhelmed, reach out to a trusted financial professional that can assist

Take your time, ask questions – remember it’s your money at stake. Any windfall should be treated as a precious chance to improve your financial situation.