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June 5th, 2015

Resist the urge to splurge


At some point in our lives, we ponder the question, “What would you do if you were given a large sum of money?”Many people would feel burdened and intimidated with the responsibility of managing any kind of excess money.

Receiving a lump sum payout can be very exciting because for many individuals it’s rare to have the opportunity to spend or invest a large amount of money at one time. But figuring out what to do with a lump sum payout also can be very stressful, especially if you aren’t comfortable making financial decisions.

Many experts recommend that you should take several months or even a year to decide how you’ll use the money, especially if the payout is tied to an emotional event, such as a death of a family member or a separation from your job.

Maybe you’ve never had a financial plan or lived on a budget.  Now is the time – even before you go on that cruise you’ve been dreaming about.  If you sit down and take an honest look at your entire financial situation, you will be in a better position to use your lump sum payout wisely.

A lump sum payout may give you the opportunity to buy a home, live a comfortable retirement, save for your children’s education or reach another investment goal. If you’re the type of person who will read as much as possible about your options and ask the right questions about them, 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. UTC portfolio managers can help enhance the performance of your investment portfolio and identify ways for you to continue to save and invest effectively and generate wealth.

Whether you put all your cash to work immediately or periodically invest portions with dollar-cost averaging, you need to make your decision completely upon your investment objective and risk tolerance and not based on emotion.

For example, if your time horizon is 20 years, you can invest the entire lump sum of money into long term investments, such as the UTC’s Growth and Income Fund, an investment vehicle specifically designed to provide the investor with the potential to earn capital growth and dividend income and a price guarantee feature which affords investors protection of capital once the funds remain invested for a minimum of three years.  It is invested in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities.No matter your status, what is required is a judicious mixture of mutual funds, equity and fixed income investments that will enable anyone to build a strong investment portfolio.

It could mean simply allocating your income between savings and different categories of expenditure and debt repayment.

For any investor, the key to investing a lump sum is to ensure that your portfolio is well diversified and one avenue is through a mutual fund, which typically involves building a diversified portfolio of stocks, bonds and cash or short term deposits.

Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of one any asset class or security, so if one asset class or security underperforms the others can offset the impact. By having a well-diversified portfolio with a mix of these asset classes, you can participate in the gains of the best-performing assets while being cushioned from declines in others. Remember that 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.

Pay Off Debts

This should be a priority for anyone that falls into a large lump sum of money, whether an inheritance or lottery winnings. Clean up your consumer debt such as car loans, credit cards or even student loans.

Pay off mortgage

Imagine how much money you could save in the future without a mortgage payment. Not only does it free up your savings but the money could go into a retirement instrument, such as the UTC’s Universal Retirement Fund.

Give A Little

Not everyone will agree but you could give some of the money to your favorite charity or someone that needs urgent medical attention. Be sure to be discreet about this, because you don’t want a bunch of people knocking on your door asking for a handout.

If you are careless with your moneyand go on a spending spree or foreign jaunt, you might regret it later. Whether your windfall is an inheritance, bonus or redundancy payout, you should put it to work by investing and saving it for the future.

Once you fully understand all of your options, you’ll be in a better position to make good financial decisions. So try to resist the temptation to splurge and save yourself a lot of stress.

Be responsible, don’t go crazy, and take care of your financial priorities first.

By setting sharp, clearly defined investing goals, you can measure and take pride in the achievement of those goals, and you’ll see forward progress in what might previously have seemed a long, pointless grind.