We all dream of that unexpected windfall—a distant relative leaving us a fortune, a lottery win, or even a generous company bonus. While the idea of suddenly coming into a large sum of money is exhilarating, knowing how to invest it wisely is crucial. In the latest episode of the Financial Freedom Pod, Bruce Whitfield sits down with certified financial planner Warren Ingram to discuss the best strategies for managing and investing a windfall.
Warren Ingram emphasises the importance of having a game plan. “Trying to think on the fly is a really bad idea when it comes to investing,” he says. Instead, he advocates for a strategic, methodical approach. One of the key takeaways from the episode is the concept of phasing in your investments.
Phasing in involves gradually investing your lump sum over a period of time rather than all at once. This strategy helps manage market volatility and emotional decision-making. “The best strategy I can think of to manage my emotions and the motions of markets is to phase the money in, feed it in over a period of time,” Warren explains.
The duration of the phasing-in period depends on the size of the windfall and current market conditions. For larger sums, such as an inheritance, Warren suggests a longer period, anywhere from six to twelve months. For smaller amounts, like a company bonus, a shorter period of three months may suffice. “Size counts, so bigger is longer,” he notes.
Market conditions also play a significant role. If markets are expensive and have been on an upward trend, extending the phasing period can help mitigate the risk of buying at a peak. Conversely, if markets are in a downturn, a shorter phasing period allows you to take advantage of lower prices.
Another critical point Warren makes is the importance of starting immediately and staying invested. “Our most important job is to get going with our investments and to stay invested and earn the dividends and get the growth irrespective of the market fluctuations,” he says. This approach aligns with the principles of behavioural finance, focusing on long-term growth rather than short-term market movements.
Automation is another tool that can simplify the investment process. By automating your phased investments, you remove the need to make monthly decisions, ensuring consistency and reducing the risk of emotional interference.
Whether you’re dealing with an unexpected inheritance, a lottery win, or a company bonus, having a clear game plan and phasing in your investments can help you navigate market volatility and maximise your returns.