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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You want your money to grow and work for you, but risk makes you uncomfortable. Is there a way to do it safely? You bet there is.

There is a rule of investing that is ancient and unchanging. It has guided the investment strategies of people since the very beginning of commerce and the advent of money. This rule states that the bigger the risk, the more the return. You can invest in safe and secure investments, but you will not make big profits or grow rich. You also will not be likely to lose your investment and go broke either. When you understand this principle, the answer to the question becomes dependent on the rate of return you are expecting. It would be better to go ahead and phrase it this way: What is the safest way to invest money to realize the return on my investment that I desire?

A regular passbook savings account at your local bank could be considered a form of investment. Many people see saving and investing as two totally different things, but when you understand the risk versus return principle; you can view savings as a very low risk investment. There are ways to increase your return even when investing in savings at the bank. Certificates of Deposit and Money Market accounts pay a higher rate of return than passbook accounts.

Bonds such as United States Saving Bonds are another low risk, low return investment. There are many types of bonds issued by local governments and corporate entities. The bond is basically a promise to repay at certain amount of money and interest over a certain time span. They are similar to Certificates of Deposit in many ways. Once again, the drawback is a lower rate of return on your investment.

Mutual Funds are one of the safer ways to seek a little more return with a minimum of risk. A mutual fund basically gathers investments from a large number of individual investors and puts the total amount under the control of a fund manager. The fund manager invests in various stocks and other investments to try to make a profit. The profit is then split among all the investors. The fund manager is guided by certain restrictions in his investment options depending on the type of fund, but by spreading the investment out over a large number of various stocks, he reduces the chances of taking a major loss. One disadvantage is that a certain amount of the profit must go to pay the administrative costs of running the fund. This reduces the profit, but still, overall, the mutual fund represents a safe investment that can give a higher return than simple savings.

It does not really matter what type of investment you chose. There are still some ways to make the investment safer. The most important is to study the investment carefully. When you are armed with knowledge, you have a much better chance of negotiating the rocky waters of investment. You can develop an investment strategy that further reduces risks. What you can not do is find a sure thing in investing. Certainly not in an investment that offers the chance of a large return. If you are not willing to take some risks, the savings account at your bank might be the best course for you.

By: Winston Goldstein

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