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3 Ways to Invest Your Settlement Money Wisely

Settlements of lawsuits can right wrongs and assist those whose lives are affected negatively by a personal injury, wrongful death, or some other incident to recover. When you receive your settlement money from a trial, you may not be sure about what to do with it.

To start with, pay off all the medical expenses that relate to the personal injury or workers compensation case. This money is vital after an incident such as a car crash to cover the costs of medical care and the damages. Pay those off quickly to avoid owing thousands more in interest by the end of the payment term.

Next, make sure you understand the tax burden for such a large sum. The taxes owed will vary depending on the amount received and the terms in which the money was “earned.” A financial advisor can help you calculate the exact amount you owe.

Finally, you should invest the remaining funds. An investment will not only maximize your earnings, but also reduce your tax burden.

However, this decision shouldn’t be taken lightly. There are high risks associated with investing if you don’t know what you’re doing.

You need to have a vision for what you desire your money to do for you. In order to minimize risk and maximize your savings, here are three essential investment tips.

  1. Save Smart

A savings account that accrues compound interest is one of the best ways to multiply your lump sum. If you have the patience, you can place your remaining funds into one of these savings accounts and wait for a decade or more to pull it out again.

If you withdraw it early, you’ll be subject to a fee. By the end of the term, depending on the original deposit and the interest rate, you could have 10 times the amount you started with.

If you’ll need access to the funds before 10 years have elapsed, a money market fund might be a better alternative. This is an interest-earning savings vehicle from which you can draw funds at any time without penalties or fees. Do a little research to identify the best money market accounts available to you.

  1. Decide on the Type of Investment

There are dozens of investment types to choose from. The basic definition of investing is placing money into a venture and from which you expect to receive some kind of return. People who have experienced a sudden cash increase often put it toward one or more of the following investment types:

  • S. savings bonds
  • Mutual funds
  • Exchange-traded funds, bonds, and stocks
  • Retirement accounts
  • Savings accounts
  • Certificates of deposit
  • Index funds
  • Real estate
  • Businesses
  • Money market instruments and funds

Some of these options are safer than others, and many require a fairly thorough understanding of the market before you dive in.

For example, a retirement fund or savings account can be handled on your own with very little risk, but exchange-traded stocks will likely demand a greater understanding of the market and feature a higher potential for loss. 

  1. Consult a Financial Advisor or Mentor

You can, of course, make investment decisions on your own, but it’s usually safer to consult a professional. Visit your financial institution for a free consultation on investment ideas.

They can direct you to courses, books, and other resources that will educate you on the best investments for your lump sum. You might also locate someone who has a history of making successful investments. Ask him or her to explain the process to you.

An experienced investor can tell you about mistakes and provide insights on where you could start. Choose someone who won’t mind giving of his or her time to help you succeed.

The last thing you want to do after you receive a settlement is waste it on things that won’t have a lasting value or impact. Use the short but useful list above to help you get the highest ROI on your windfall.