Financial Adviser | Looking for a quick way to double redundancy money
QUESTION: I will be made redundant soon and I want to know what investment options you would give to someone like me who wants to make the right choices with her money. I am looking at a sum of between $500,000 and $1 million. I want an option that will double my investment quickly.
FINANCIAL ADVISER: Redundancy introduces a great deal of uncertainty into the lives of persons who are so affected, although it often puts a good lump sum into the hands of such persons. If not carefully handled, this sum can evaporate in the blink of an eye.
How you go forward depends on many things, some of which you may not be able to determine. For example, you cannot be certain about how long you will be out of a job and thus not be earning employment income.
Even if you succeed in gaining employment relatively soon, it is quite possible that the remuneration may be less than you are now used to, or it could be less certain.
Your current financial situation is another factor likely to bear on the way forward. If your financial position is strong, you have a cushion which, by the way, you should not be too quick to erode. A weak financial position will put your ability to manage money well to the test.
Your family responsibilities must also be given serious consideration as it will influence the level of risk you can take and your cash flow needs. Do not forget the servicing of any debt you may have.
Having said all the above, how should you realistically invest the lump sum you are expecting? If you are going to need cash flow - and I do
not see a significant amount being
generated from the sums you have mentioned - you must make investing in interest-earning securities a priority. These also have the advantage of
preserving your capital.
Bonds generally pay interest every six months, so I doubt you would find that option attractive if regular cash flow is what you want. Shorter-term instruments would be more suitable in such a case. Treasury bills would be one possible option, but if the sum is JM$1,000,000, repos would be an option as well.
But you seem to want capital growth. Ordinary stock or capital growth unit trusts would be the most likely options. These promise very good returns over the long term but are fraught with serious risk more so in the short term.
I am sorry to advise that you are not likely to find a safe investment that will give you the kind of yield you want in the short term. I hardly hear about get-rich-quick schemes these days, and, frankly, I do not consider such schemes investments. Just in case you are
tempted to be drawn to any that may emerge, yield not to temptation and avoid sorrow.
Prepare for the worst-case scenario: Proceed as if you will be out of a job for an extended period and tread carefully with the lump sum and other financial resources you may have. And bear in mind that even if you should decide to start a business, it will take time to yield good returns.
Be patient and careful. Avoid any moneymaking endeavour that you do not understand, and, if you need guidance, consult a competent financial professional.
I wish you well!
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email firstname.lastname@example.org.