If you have a lump sum to invest arising from a settlement for personal injury, there are some special questions to consider.  Moneycube outlines the key things to think about.

1. Remember you’re investing for the long term

Most people want a compensation award to make a long-term difference to their financial situation.  You need an investment choice to match.

Investing for the long term gives you the scope to buy into higher risk-reward assets.  In particular, you’d expect a heavy focus towards equities, or company shares.  

It might be wise to keep some of your compensation as an emergency cash fund.  But with interest rates so low, any money you keep as cash in the bank is unlikely to grow.

2. Is it time to boost a pension, or rid yourself of a mortgage?

Investing your money is not the only alternative.  

For example, it might be possible to gain substantial tax relief on a one-off pension contribution.

It’s also worth considering the scope to pay down your mortgage (in line with any early repayment conditions your lender applies).

3. Do you need an income from your investment?

If you’re not able to work as a result of your injury, it’s likely you’ll need a regular income from your investment.  

That requires investing in a particular mix of underlying assets, such as dividend-yielding shares, and bonds.  

A good financial advisor will help you think about balancing the amount you’re taking out of your savings pot, compared to the rate of investment growth.

4. Can you get the tax back?

Some investors can reclaim exit tax on the growth of a compensation award investment.  For this, you’ll need to satisfy two conditions applied by the tax man.

Firstly, you are “permanently and totally incapacitated”.  That means, not able to do any kind of work – as a result of your injury.

Secondly, the personal injury compensation award must be your main source of income.

Still thinking?

Read more on investing a lump sum:

How to invest €100,000

5 questions if you’re investing a lump sum

How to invest €10,000

 

By investing €250 a month you could save €17,400 in 5 years

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