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How to Sensibly Manage Large Amounts of Money

by on September 30, 2019

Whether it’s a large sum of money received from an inheritance, a compensation payment or money won on the lottery, there are many ways for your clients to protect that money and make it last. But despite all the information available, financial literacy remains at an all-time low in the country. A Financial Capabilities Study conducted in 2016 found that nearly two-thirds of Americans lack even the most basic financial sense. So, this article will aim to serve as a short guide to help your clients efficiently manage large sums of money.

Investing in stocks

Corporate stocks offer the greatest potential for growth over a long period of time. Investors willing to invest long-term, say 10-15 years, generally rewards them with positive returns with stocks averaging a compounded return of approximately 8% per year. At the same time stocks also fluctuate and there’s no guarantee that the company whose stock an individual holds will do well, so there is the potential for loss as well. Having said that, if an investor has enough capital it is advisable to invest in well-established companies like Google, Apple or Amazon. CNBC even advised Mega Millions lottery winners to buy Amazon stocks last year after the jackpot went up to $1.6 billion. Estimated at $687,722,823 after state and federal taxes, winners could buy 384,353 shares, with one share being worth $1,789.30 in October 2018 when the article was published. Lottoland documents that the $1.6 billion Mega Millions jackpot is still the record amount of money that anyone has ever won on the lottery. Even without such a large sum of money, advising your clients to diversify and put their money in a variety of stocks is still a wise investment. After all, they certainly shouldn’t put all their eggs in one basket. 

Real estate

Real estate investments offer an alternative for those who may not necessarily want to invest in the stock market. Under the right circumstances, they could be lower-risk investments and may yield better returns. In ‘Reasons to Invest in Real Estate vs. Stocks’, Investopedia describes that approximately 15% of Americans invest in real estate outside of their primary residence. Real estate’s appeal is that it’s a tangible asset that can be controlled and diversified. Many clients are advised to get into real estate because it appreciates 3% to 4% per year on average, and if we factor income generates from renting out a property then that could mean an additional 8% to 12% per year. The biggest thing to keep in mind with real estate is that it requires a lot of research and it’s not an asset that’s easily liquidated or quickly cashed.

Money market accounts

Many credit unions offer this type of interest-bearing account, which pays a higher interest than a regular savings account. The main advantage of these types of accounts is the higher interest rates and insurance protection. Average interest rates for money market accounts is 0.15%, while a regular savings account averages 0.09%. Again, depending on the institution interest rates, as high as 1.9% may be offered. It is important to remember, that interest rates on money market accounts are variable; they rise and fall with inflation, so the interest that is compounded yearly, monthly or daily, can have a substantial impact on a client’s return. For credit unions, the NCUA will also insure money market accounts for up to $250,000. The downside of these accounts are that there may be a monthly limit on the amount of transactions allowed, as well as the requirement to maintain a certain balance and monthly fees.

This content is for CU BUSINESS eMagazine + WEB ACESS and THE TEAM BUILDER (GROUP SUBSCRIPTION) members only.
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