Don’t blow your windfall, invest it instead

Receiving a large amount of money can be a life changing experience. Whether it be through an inheritance, proceeds of a business sale or lottery win, a cash windfall can set you up financially for life.

While it’s good to treat yourself to a few luxuries, don’t be tempted to blow your bonanza like Michael Carroll did. The former binman won almost £10 million on the National Lottery in 2002 but went on to spend most of it on wild parties, flash cars and jewellery before applying for his old job back.

Here’s a few more sensible things you might do after gaining your newly found wealth.

Pay off your debts

The first thing to look at doing is paying off debts. Credit cards and other high interest forms of borrowing should go first in order to eliminate the typically punishing rates of interest. Paying off your mortgage gives peace of mind and long-term certainty, but given that lending rates are currently at their highest for 14 years, those on lower fixed rates might want to hold off until their term ends.

Secure a permanent residual income

For those with a low risk tolerance, easy access savings accounts currently offer interest rates of around 2.5%, with a few 3+ year fixed bonds offering almost 5%. But with inflation currently sitting at almost 10%, both of those choices are going to erode the real value of your capital quickly.

More risk tolerant investors might want to consider high income dividend shares. There are plenty of property REITS listed in London, like Triple Point Social housing REIT (SOHO) currently yielding 7%+. Reflecting current market sentiment, many are also trading at a substantial discount to net assets. At the high end of the risk spectrum, several debt focussed funds including Honeycomb Investment Trust (HONY) and Blackstone Loan Financing (BGLF) are offering inflation busting yields of more than 10%.

Buy growth shares

In the hope of growing your capital even more, and perhaps receiving another windfall in the future, small cap growth shares are worthy of consideration. As well as offering certain tax benefits, they could multiply your money many times over. Recent tips on Master Investor include professional and financial business services provider Christie Group (CTG) and pawnbroker H&T Group (HAT). Other options might include “angel investing” into unlisted companies, where you could also use your expertise to help advise on growth strategy.

Plan tax efficiently

Most windfall sources, such as inheritance and business sales are subject to complicated tax treatments. Lottery winnings meanwhile, such as those that can be won at Lottoland, are tax free. Some tax reduction schemes might be available however, such as Entrepreneurs Relief for business sales. Of course, the £20,000 annual ISA allowance should be maximised for any new investments made. While hiring a tax adviser or financial planner might seem expensive at first, it could save you many thousands of pounds over the long-term.