When you find yourself with a chunk of money, particularly if it is enough to form the basis of a good-sized investment portfolio, it is easy to become overwhelmed by advice from friends and investment professionals. The most important thing you can do is leave it in U.S. Treasury bills or other very conservative investments for a while and take your time to research your options and define your investment goals.
Consult with investment professionals. Consider their advice, but take time to make decisions. Not all stockbrokers and certified financial planners are created equal. Some are better than others. Do not be pressured into buying hot stock tips or special investment deals you must move on right away. Good investments come along every day and you will miss nothing if you delay your decisions.
Determine whether you will use the money in the foreseeable future to buy a house, fund a child's education, start a business or spend it on some other high-cost item. If so, keep it safe in conservative income investments such as short-term bonds that mature when you plan to use the money, particularly if you need to grow the investment to meet your needs.
Examine your total financial position if you have no immediate plans for the money. Your tax liability on such a large amount of money is one of the first things you should consider. If you plan to use it for retirement, your tax accountant or attorney can advise how to use various retirement vehicles so you get the maximum advantage from income tax exclusions.
Consider establishing a dividend growth portfolio. Investing in dividend-paying stock, and using the dividend reinvestment plans (DRIP) associated with that stock, will automatically reinvest your dividends in the stock. It is an easy way to gradually build a large stock portfolio. This is dollar-cost-averaging -- buying set dollar amounts of stock at regular intervals over time. There are companies that perform this service for all stock investments, holding your cash in a money market fund, investing a small portion monthly into a chosen portfolio of stock, and reinvesting any dividends produced.
Research packaged portfolios such as mutual funds, exchange-traded funds (ETF) and unit investment trusts (UIT). If you have no investment experience, packaged investments are a good way to take advantage of professional portfolio management without the cost of having your money privately managed.
- Consider using your money to pay off any debt costing you more in interest than you can make in a conservative investment. Compare it to using the income from your investments to help with your monthly debt payments.
- Ignore hot stock tips from email stock promoters, and don't blindly accept the advice of friends who tell you about how much money they are making in day trading. Take time to inform yourself, because knowledge is your best investment tool.
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.