Receiving a lump sum can create both opportunities and questions about what to do next. Whether the money comes from an inheritance, the sale of a business or property, a redundancy payment, bonus, insurance payout or maturing investment, it can open up new financial possibilities.

For many people, one of the first decisions is how to use that money. Talking through the options with a financial adviser can help you consider how a lump sum fits with your wider goals, timeframe and circumstances.

If some or all of it is being considered for investment, a common question is whether to invest the full amount at once or spread the investment over time. There is no one-size-fits-all answer, and the approach that may be appropriate will depend on factors such as your circumstances, goals, timeframe and comfort with risk.

Investing the full amount at once

Investing a lump sum in one go means the full amount is exposed to the chosen investments from the outset. If markets rise after the investment is made, the full amount participates in that movement. If markets fall, the whole amount may also be affected.

How significant those short-term movements are can depend on the purpose of the investment, particularly how long the money will remain invested and the type of assets involved.

Investing progressively

Another approach is to invest a lump sum in smaller amounts over time. This is sometimes described as drip-feeding or dollar-cost averaging.

Rather than choosing one entry point, money is invested at different market prices. This can reduce the impact of investing everything immediately before a market fall. However, some of the money remains outside the market while it is waiting to be invested, so it may not benefit if markets rise during that period.

Progressive investing does not remove investment risk. It changes how and when the money enters the market.

Goals, timeframe and comfort with risk

The purpose of the money and when it may be needed are important considerations. Money intended for a goal many years away may have more time to recover from market ups and downs than money that could be required soon.

Risk tolerance can matter too. With a larger amount invested, changes in value can feel more noticeable in dollar terms. An investor profile considers factors such as timeframe, need for access to money and comfort with fluctuations, helping to put investment risk into context.

Keeping some money accessible

Not every dollar of a lump sum necessarily needs to be invested. If some of the money is needed for upcoming expenses or as a buffer against unexpected costs, access to cash can be an important factor to consider. Having accessible money may also reduce the need to sell longer-term investments simply to meet the cost of a short-term expense.

Trying to find the “perfect” time

It can be tempting to wait for markets to look more favourable before investing. The difficulty is that the ideal time is only obvious with hindsight. Markets can move quickly in either direction, and forecasts cannot provide certainty about what happens next.

Waiting may mean missing a period of market growth, while investing immediately can mean experiencing a downturn soon afterwards. That is why the choice between investing at once and investing progressively is not simply a question of picking the right day.

The appropriate approach depends on the individual

A lump sum can represent a significant change in someone’s financial position. Factors such as the purpose of the money, investment timeframe, existing investments, need for accessible cash, tolerance for risk and wider financial circumstances may all be relevant.

If you have received a lump sum and are considering what to do with it, a SHARE adviser can help you understand the different options and how they may relate to your goals and circumstances. Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.