Becoming a millionaire doesn’t mean what it once did. Once you were a kid, one million pounds sounded like a life-changing amount. Today, it signifies a lifetime of working, saving, and investing. There’s no doubt about it, one million pounds remains a lot of cash.
Enough that you need to think carefully concerning how to invest it. Large sums of income have reached risk from over-taxation, loss-making investments and inflation, so as you build your wealth, it is important that you also develop your understanding of wealth management.
So, before making any life-changing financial decisions, be sure you take into account the following things:
Diversification – It goes without saying that you should never invest all of your funds in just one place. No matter how safe that certain place might appear, there is still an element of risk involved. However, More information helps you to mitigate this risk by spreading your funds across a range of different sectors and markets. For most people, the first step towards diversification is selecting your equity/debt/cash split. Equity investments might include stocks and shares, property, or hard assets (including gold, wine or art).
Debts can cover the bond market, peer to peer loans, and gilts; while cash usually involves leaving your hard earned money in a banking accounts or partly in a cash ISA. No matter where you invest your money, you ought to weigh up the projected returns up against the possible risk. The best paying cash ISAs currently pay around one percent in interest, at a time when inflation is 2.6 percent. This means that any cash left in those accounts will be losing approximately 1.6 per cent of the value in actual terms. On the plus side, you are extremely unlikely to shed any more than that, unless your bank goes under.
As well as that unlikely scenario, the Financial Services Compensation Scheme (FSCS) guarantees your capital approximately the price of £75,000. Beyond cash holdings, you are more likely to find inflation-beating returns. Typically, debt is the more conservative option, with lower risk and fixed returns. Equity investments can pay attractive dividends, but – inside the worst-case scenario – they are able to also collapse.
With a £1m portfolio, it is crucial that you select an equity/debt/cash split that you are confident with, so you diversify further within each of these categories. If you don’t like the thought of researching lvkiwk possible investment option yourself, you are able to take a short cut to diversification by investing your hard earned money using a fund manager. A £1m portfolio can give use of a number of the top-performing funds in the country, where your hard earned money will be invested on your behalf with a professional investment manager.
However, this alternative usually comes along with hefty management fees. Plus, you will need to accept the fact that you are relinquishing control of your hard earned money and entrusting it instead to a complete stranger. Inside the spirit of diversification, fund management investments should probably be regarded as a proportion of the overall portfolio.
Liquidity – Prior to deciding to invest all of your money, you should have some kind of investment goal in your mind. Maybe you’re saving for your retirement, for any trip, or your children’s future. Whatever plans you may have for the £1m, you will have a point where you will want to withdraw your hard earned money. Invest using this date in your mind. As an example, if you wish to retire in 10 years, be sure you don’t tie your hard earned money away in a 20-year bond. Likewise, if you think you will need to gain access to some of your funds at short notice, make sure that you aren’t likely to be subject to penalty fees for early withdrawal.