lump sum

What should you do if you receive a lump sum, such as an inheritance, legal settlement, or pension payment? Should it be invested for growth or for income?

Invest for growth

A “growth investment” tries to increase the amount of money you have. Growth investments often entail some level of risk, so if you plan on using the money in the short term, you should consider a more conservative investment. If you hope to grow the lump sum to be able to meet a long-term goal, then consider the amount of risk you can take. What would happen if you lost part or all of the principal? 

Growth investments have the plus of potentially increasing the real value of your money over time, since growth investments – like the stock market – could outpace inflation. If you don’t need the extra funds to live now and can tolerate market volatility (which means you could lose money), growth investments may be the appropriate place for your lump sum. 

Invest for income

An “income investment” usually has a lower risk level and pays regular interest or dividends. Examples are fixed-income securities, such as bonds, bank deposits, and even real estate (or if you want to own property but don’t want the hassle, you could consider REITs – Real Estate Investment Trusts). If you want to increase your current cash flow, income-producing investments may be appropriate for you. 

How to make a decision

If you receive a lump sum, when deciding to invest for growth or income, start by asking yourself:

  • Is your emergency savings fully funded?
  • Is your retirement savings plan on track?
  • Do you need more current income now?
  • Would you like to use the money now or would you like to gift it in the future?
  • How much risk can you handle?
  • What is your investment time-frame?

If you need a licensed financial professional to help, be in touch at 02-624-4-2788.  

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published February 20, 2017. Updated January 2021

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