Guest Post: 5 Tips to invest large sums of money cleverly

There are different ways to get a large sum of money: inherit a sum, sell the car, win the lottery or work hard in a classic way – by Ana Maria De La Cruz at Outreachbee

 
Either way, the same question arises: where to put the money if there is a threat of zero or even negative interest on the checking and overnight money account? If you have not planned a major purchase, you should consider investing your money in the capital market.

We will show you what to look out for when investing your money.
 

What is a “large” amount of money?

 
How much is “a lot of money”? This is very subjective and is perceived differently from person to person. If you just started working with no prior experience, then a monthly wage of £2,000 is a lot of money; but if you’ve already had a few years of professional experience and get a fat bonus, then £50,000 per month is a lot.

These are just examples. The point is: it’s all about your personal perception of what you consider “a large amount of money.” Because this feeling influences your claim to your investment. Lottery winnings, for example, are most of the times large amounts of money. So, how to invest Lotto winnings and other large amounts of money?
 

Why are we hesitant to invest large amounts?

 
If you invest £50, you certainly don’t worry as much about your investment as if you invest £10,000. The higher the amount, the more nervous most investors become. The biggest fear is investing at the wrong time: what if I invest all my money today and prices collapse tomorrow? In addition, investors with large sums of money are more concerned with the questions of how safe the invested money is and how high the chances of return and risk of loss are. We give you five tips so that you can invest your money as relaxed as possible.
 

5 tips for investing a large sum of money

TIP 1: Pay off the loans first before investing.

 
Before you start saving for investments, you should pay off your debt. Because their interest rates are usually higher than those of any investment opportunities. Money that gives you a return of perhaps 3 percent on the stock market is not a practical investment if you still have to pay off a loan with5 percent interest, for example. But check carefully. Especially in times of rising interest rates, older loans may be cheaper than the interest on savings. In addition, there is no possibility of special repayment or early redemption for every loan.
 

TIP 2: Invest early

 
Don’t look too far for the right time to invest your money. Every day that your money is not invested is a lost day. The sooner you start, the longer your money can work for you, and the more you benefit from compound interest.
 

TIP 3: Invest broadly and worldwide

 
Don’t depend on the price development of a single company, but invest in several securities of companies and countries around the world. This way, you reduce your investment risk. The best way to do this is with a portfolio made up of several funds or ETFs. If it is too complicated for you to do it yourself, rely on an experienced and trustworthy (digital) wealth manager.
 

TIP 4: Invest for the long term

 
The longer you invest your money, the better. There are always price fluctuations on the stock exchange, which are more likely to be balanced out over a longer investment period. When investing in funds, we recommend an investment period of at least three years.
 

TIP 5: Split into smaller amounts

 
If you still don’t feel ready to invest your large amount of money, we have another bonus tip for you: Split the sum into several smaller amounts and invest them at different times. You can even benefit from interim price declines by getting more shares at a lower price for your money.

What inflation means for your wealth accumulation? Inflation plays an important role in your investment: as soon as the inflation rate is higher than your interest rates, it eats up your capital growth or even reduces the value of your investment. The exact calculation for the real interest rate is as follows:
 

(1 + real interest rate) = (1 + nominal interest rate) / (1 + inflation rate)

However, the simpler calculation “interest rate minus inflation rate” is a very good approximation. For example, with a nominal interest rate of 3 percent and inflation of 2 percent, your capital only grows by about 1 percent after adjusting for inflation.
 
With this basic knowledge of interest rates and returns, you can now build wealth in 5 steps.