What To Do With A Windfall

If Charles Dickens taught us anything, it was that anyone can have a random windfall just drop into their laps at any time. Maybe you’re expecting an inheritance from an older relative or maybe one will just happen upon you, but what exactly is the next step when you suddenly receive a large amount of money?

The conventional wisdom would state that you should put the total amount in a savings account, and then slowly invest it in a diverse portfolio of stocks and bonds, over about the course of a year. This allows you to dip your toe in the market ever so slightly, and then more and more as the year goes on. Theoretically this protects you from a market catastrophe during that year.

However, this type of thinking (called “dollar-cost averaging”) isn’t the smartest way to go. Sure, it seems to be protecting your assets, but only from an unpredictable, unpreventable event within the space of 12 months. If you have a marketing strategy that you believe whole-heartedly in, waiting a year to implement will most likely do nothing but lose you money.

We like to believe that we should ease into the market, because the thought of putting all of our assets at risk at the same time is nerve wracking. However, if you believe in your market strategy, the idea that you’re protecting yourself for 12 months is not logical. You’re not going to periodically pull all of your assets out of the market again to further protect yourself, are you? Then why not go all in and start getting investments on returns faster? It may seem like a risky move, but it’s backed by logic.