Lump sum investment decisions can be hard to make no matter how familiar you are with making investment decisions. Below are some key questions you should ask yourself before you begin searching for investments to make with your windfall.

What kind of returns are you looking for?

Answering this question is a vital starting point. Are you just looking for a regular steady income to be generated from your investment or will you be investing with a view to taking no regular income and instead retire off the invested lump sum at some point in the future or perhaps use it to pay off your mortgage at retirement?

How much risk are you willing to take?

With any investment decision it is crucial to define how much risk you are willing to take (often referred to as your risk appetite). Risk and returns are very closely related in the investment world. The more risk you are willing to take then generally the more potential profits you could make. If you are depending on the lump sum to fund your retirement in 3 years time then you should take a low risk investment. However if you are fairly wealthy and view the cash as a bonus then maybe you can afford to take on more risk in the hope of getting higher returns.

How much time or expertise do you have to put in?

This is vital to understand. If you have the time and interest to invest then maybe you can learn to invest in a rising sector such as commodities that at the minute is giving great returns an steady growth. Alternatively if you are short of time and knowledge then perhaps you should opt instead for a managed fund where you will be charged for having a professional fund manager look after your money and make investment decisions on your behalf.

By: James McKerr

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