How To Invest A Lump Sum | International Investment Accounts
If you’ve recently received a lump sum, or are expecting one soon, you may be wondering how best to invest it to make the most of your money. Whether your lump sum comes from a pension payout, inheritance, work bonus, business sale, or a settlement, deciding what to do next is an important step toward building a secure financial future.
Investing a large sum, rather than simply spending it, is a smart move, but it may be difficult to choose the right approach.
Whilst It’s always best to seek expert advice before making any big investment decisions, our guide will walk you through the key strategies and factors to consider when planning to invest your lump sum.
What is a Lump Sum?
A lump sum payment is a single, substantial amount of money received all at once, and for many people it can present a valuable opportunity. If you’re over the age of 55 (rising to 57 from 2028), you may be able to take up to 25% of your UK pension as a tax-free lump sum. You might also receive a lump sum from a work bonus, an inheritance, a settlement, or a retirement payout.
Regardless of the source, deciding what to do with a large sum of money is a big financial responsibility. Rather than leaving it in a standard savings account, which could lose value over time due to inflation, you may choose to invest your lump sum to grow their wealth. Investing wisely can potentially offer higher returns and make your money go further in the long run. It's a wise way to build a more secure financial future.
Important Considerations Before You Invest
Before exploring avenues to invest your lump sum, it’s important to take a step back and consider your financial priorities. Start by clarifying your goals - what do you want your money to achieve, and over what time frame? This will help define your investment horizon.
You may want to use part of the money to pay off existing debts, particularly if they are causing financial stress, or set aside a portion in an easily accessible emergency fund.
If you are a UK expat living abroad, it’s also wise to think about where you want to invest; would you prefer to keep your funds in the UK, use an offshore platform, or take advantage of tax-efficient local investment options in your current country of residence? Also consider whether you might move back to the UK in the future, as this can affect the suitability of different investment vehicles.
Receiving a lump sum can be a rare opportunity to transform your financial future. That’s why making a conscious, informed decision is essential. Before investing, be sure to understand your risk tolerance. This means knowing how much risk you are comfortable taking and what kind of returns you're aiming for. Some assets are low risk with steady returns, while others may be more volatile but offer greater long-term growth potential.
Working with a qualified, cross-border financial adviser can help you assess your risk profile and build an investment strategy that matches your goals and comfort level. Ultimately, structuring your portfolio in line with your personal circumstances can help you make your money work harder and bring long-term financial stability, security, and growth.
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Tax Implications of Lump-Sum Payments
Before deciding what to do with a lump sum payment, it's essential to carefully consider the financial and tax implications. Not all lump sums are tax-free, and depending on the source of the payment, you could owe tax. For example, while up to 25% of a UK pension can typically be taken tax-free, any amount above that may be subject to income tax.
Similarly, some inheritance payments may also come with potential tax liabilities depending on the size of the estate and where you are a tax resident. It's important to understand your tax obligations and ensure you’ve set aside enough to cover them.
Lump-Sum Investing
Lump-sum investing is a strategy where you invest the entire amount of your lump sum into the market all at once, rather than spreading it out over time. This approach can be appealing if you want to avoid the temptation of spending the money and are keen to get your investments working for you as soon as possible.
A key benefit is that your funds begin compounding immediately, which can be advantageous since markets have historically trended upwards over time.
By investing a larger amount at once, you may also gain access to a broader range of investment options, as many funds and bespoke portfolios require minimum investment thresholds. Reaching these thresholds can unlock benefits like reduced fees or access to low-cost share classes.
Lump-sum investing is best suited to those who are comfortable with a certain level of market risk and are focused on long-term growth—typically over a 10-year horizon or more. If you’re confident in your financial goals and want to avoid the complexities of trying to time the market, this strategy could be an efficient and straightforward way to maximise your potential returns.
Investing with Pound Cost Averaging
Pound-cost averaging, also known as dollar-cost averaging is a popular investment strategy that involves spreading your investment out over time rather than investing a lump sum all at once. Instead of placing your entire amount into the market immediately, you “drip-feed” the funds in regular instalments.
This method helps reduce the risk of investing all your capital at a market high, which could result in short-term losses. By investing consistently, regardless of market fluctuations, you smooth out the highs and lows over time and remove the pressure of trying to time the market - a challenging task even for experienced investors.
Pound-cost averaging may be suited for more conservative investors, or those approaching retirement, who prefer a steadier approach with less exposure to volatility. It offers peace of mind, stability, and a long-term focus, making it an effective strategy for those who want to invest confidently without the stress of market timing.
Where Should You Invest Your Money?
Once you’ve decided on an investment strategy, the next step is choosing where to invest. A specialised financial adviser can help you explore a range of investment options which align with your financial goals and risk tolerance.
For example, stocks, which are equity investments in companies, offer the potential for high growth as you benefit from a company’s success, but they can also carry a higher degree of risk.
Bonds, on the other hand, function more like loans to corporations or governments, offering regular interest payments and generally more stable returns, making them a lower-risk option.
Another popular investment vehicle is Exchange-Traded Funds (ETFs), which track a group of assets, such as shares, commodities, or bonds, allowing you to diversify your portfolio and reduce the impact of market volatility.
Building a diversified portfolio which includes a balanced mix of stocks, bonds, ETFs, and other assets allows you to manage risk more effectively. Diversification is key to protecting your wealth, helping you stay resilient during market fluctuations and dips.
Expert Investment Advice
Investing a lump sum can feel daunting, but working with a specialised adviser can make all the difference.
At The Wealth Genesis, we’re dedicated to helping expats around the world gain the knowledge and guidance they need to make their investments thrive. We offer expert, ongoing support and personalised financial plans tailored to every client.
As fully independent advisers, we’re not tied to any specific financial institutions, platforms, or products, and we operate on a transparent flat-fee basis, with no hidden commissions or charges, so you can trust that our advice is always in your best interest.
