While spending unexpected funds on lifestyle upgrades can offer short-term benefits, the right investment strategy can help you achieve greater financial security down the line. If you’re looking to make the most of a surprise windfall, consider these investment tips from the members of Forbes Finance Council.
Members of Forbes Finance Council share tips for making the best use of an unexpected cash windfall. PHOTOS COURTESY OF THE INDIVIDUAL MEMBERS.
1. Invest it in passive index funds.
Passive index funds are a great way to invest an unexpected windfall quickly. Given that this income was unplanned, all expected expenses should be taken care of, assuming that this money was not received. - Ankit Garg, JP Morgan Chase
2. Add it to your ‘future paycheck.’
When you come into unexpected money, you’re faced with two decisions. Do you spend that money now and receive no long-term benefit from your purchase, or do you invest that money to add to your future paycheck? By investing that money, you can increase the chances that the money grows in value over time—one day providing you a paycheck from your investments when you no longer desire to work. - Jonathan Turner, Clarus Merchant Services
3. Envision a long-term financial dream.
What do you imagine when you are opening up your child’s college fund? It’s a nice campus with students full of energy, right? Now, insert yourself in that dream. What do you want in 10 years? A big house or a nice car? Then, here is the plan. Find the best savings/investment product—one that can give you the highest yield—and put your extra cash in there. You will thank yourself later. - Kristy Kim, TomoCredit
4. Go ahead and enjoy some of the ‘found’ money.
If you’ve followed the advice of a good advisor, you will have already established spending and savings targets that balance your future needs with your current spending needs. When you receive a windfall, investing all of it sacrifices today’s lifestyle for tomorrow’s. Consider both enjoying some of the windfall now and investing a portion to maintain the balance between today and tomorrow. - Joe Elsasser, CFP®, Covisum, LLC
5. Decide when you want to spend the money.
Look at time horizons. Identifying when you think you would want to spend the money will help you determine what type of investment to utilize. For example, a short-term solution might be to leave it in savings or to purchase a CD. A longer-term solution may be a fixed index annuity or putting the money into the market. - Christopher Berry, The Castle Wealth Group | Estate, Tax & Retirement Planning
6. Create a map.
You wouldn’t go into the jungle without a map, so why treat your business any differently? A great use of a surprise windfall is to “buy” the time you and your team need to create a coherent strategic plan. Use this time to take a breath, think clearly, build your plan and then execute. This investment will pay dividends for years to come. - Andrew Lyon, Focused Energy
7. Invest in education.
Investing in education is probably the most underrated investment; however, it’s the one thing you can do that can create unimaginable returns. Once you learn a new skill it can’t be taken away from you, and you can put that knowledge into effect immediately. When you do finally purchase any course or education tools, be sure to actually complete the course. - Sa El, Simply Insurance
8. Increase your long-term investments or reduce debt.
In my opinion, the best strategy for unexpected liquidity is to increase your long-term investments or reduce debt, depending on your financial situation. At the same time, sometimes it is also good to create a separate contingency fund and invest it in noncorrelated assets for unexpected situations. - Azamat Sultanov, Fortu Wealth
9. Revisit your goals.
Having a goal before the windfall would help guide you in deciding where the money goes. Investing goes beyond making money. Attaching meaning to the new money will help you invest in the right financial vehicle. When you might need this money is critical. It wouldn’t make sense to put this money into your IRA if you needed the money one year from now. - Tony Sablan, Ultimate Wealth Strategies, LLC
10. Treat it the same way as money you’ve earned.
Whether you find money in the street or win it at the casino, treat that windfall as if you’d worked for it. Treat it like there’s no difference between that money and money you earned. A good place to start investing would be in yourself: Start a six-month emergency reserve and pay off your high-interest consumer debt. That alone will put you ahead of the majority of Americans. - Bill Keen, Keen Wealth Advisors
11. Get out of high-interest debt.
The best way to capitalize on “found” money is to pay off debt—particularly high-interest debt on a credit card or even a car loan. The longer you hold onto the debt, the more you will pay. Don’t fall into paying interest on the debt’s interest; pay it off. - Jared Weitz, United Capital Source Inc.
12. Consider taxes, then allocate it.
Remember that most sudden financial windfalls are taxable, so set aside what you owe in a high-interest savings account for tax season. Then, depending on the financial return, either invest the money in a diversified mutual fund or repay outstanding debts. If your expected return on investment is higher than the interest you owe on your debts, invest the money instead. - Tyler Gallagher, Regal Assets
13. Add this money to your ‘sacred’ account.
A sacred account is an account used only for wealth building. That is why it’s called “sacred.” When money shows up out of nowhere, immediately—without any thought—put it in this account. The reality is that you weren’t planning on that money anyway and will be just fine without it. This way you can build long-term wealth and enjoy exponential benefits instead of the one-time benefits that come with spending it now. - Jerry Fetta, Wealth DynamX
14. Stick to your plan.
Whether incoming cash is expected or unexpected, you need to stick to your plan. Perhaps you need to reduce your debt, or perhaps you can afford to invest in a longer-term goal. Wherever you stand, good investment decisions start with having a plan. - Jonathan Hudacko, Just Invest
15. Make it disappear—before it disappears.
Spare cash tends to spend itself, so unless you allocate it right away, it will be gone before you know it—on things you didn’t even know you needed (hint: you didn’t need them.). Treat it like any other income you have and spread it out according to your own desired allocation, whether that’s stocks, crypto, savings or paying off outstanding debt. - Felix Hartmann, Hartmann Capital