Lump Sum Payouts:
Questions You Should Ask Yourself Before You Invest a Dime
Receiving a lump
sum payout can be very exciting because for many individuals it’s
rare to have the opportunity to spend or invest a large amount
of money at one time. But figuring out what to do with a
lump sum payout also can be very stressful, especially if you
aren’t comfortable making financial decisions.
Once you fully
understand all of your options, you’ll be in a better position
to make a good financial decision. So try to resist the
urge to make a quick decision regarding how you’ll use your lump
sum payout. Many experts recommend that you should take
several months or even a year to decide how you’ll use the money,
especially if the payout is tied to an emotional event, such as
a death of a family member or a separation from your job.
While we can’t
tell you what to do with your lump sum payment, we can help you
make an informed decision. Before you decide, consider these
Am I carefully
Your lump sum payout
may make you a target for scams, particularly if reports of coming
payments have been in the news. You should be particularly wary
if someone approaches you, instead of the other way around, to
discuss what to do with the money.
Often, you can
avoid fraud by
asking questions and doing research on any financial professionals
or investment opportunities you are considering. You should
also beware of the warning signs for fraud, including promises
of quick profits or guaranteed returns, and pressure to send money
immediately. Walk away from those so-called "opportunities."
What is my current
Maybe you’ve never
had a financial plan or lived on a budget. Now’s the time
– even before you buy that boat you’ve been eyeing. If you
sit down and take an honest look at your entire financial situation,
you will be in a better position to use your lump sum payout wisely.
A lump sum payout
may give you the opportunity to buy a home, live a comfortable
retirement, save for a child’s education or reach another investment
goal. Make your own list of investment goals – including
that boat – and then think about which goals are most important
Many tools exist
to help you put a financial plan together. For example,
Estimate, a single-page worksheet created by the American
Savings Education Council, can help you calculate what you’ll
need to save each year for retirement. FINRA has a college
savings calculator, and the Social Security Administration
has a benefits
calculator to estimate your potential benefit amounts.
For more information
about making a financial plan, read Get the Facts on Saving
and Investing and Beginners’ Guide
to Asset Allocation, Diversification, and Rebalancing.
Do I need the
help of a financial professional?
If you’re the type
of person who will read as much as possible about your options
and ask the right questions about them, you may not need expert
But if you’re busy
with your job, your children, or other responsibilities, or you
don’t feel comfortable making important financial decisions on
your own, then you may need professional advice. Financial
professionals offer a variety of services at a variety of prices.
It pays to comparison shop.
While most financial
professionals are honest and hardworking, you must watch out for
those few unscrupulous individuals. Even if a financial
professional has been recommended by friends and others you trust,
we encourage you to thoroughly evaluate the background
of any financial professional with whom you intend to do business.
Before you hand
over any portion of your lump sum payment, make sure your financial
professional is licensed, and always check and see if the financial
professional or his or her firm has had run-ins with regulators
or other investors.
Check Out a Financial Professional
You can verify a broker’s disciplinary history by checking
the Central Registration Depository
(CRD). Either your state securities regulator or FINRA
can provide you with CRD information. Your state securities
regulator may give you more information from the CRD than
FINRA, especially when it comes to investor complaints,
so you may want to check with them first. You'll find contact
information for your state securities regulator on the website
of the North
American Securities Administrators Association. To contact
FINRA, visit FINRA's
BrokerCheck website, or call them toll-free at (800)289-9999.
You can find out about investment advisers and whether
they are properly registered by reading their registration
forms, called the "Form
ADV." You can view an adviser's most recent Form
ADV online by visiting the Investment Adviser Public Disclosure
(IAPD) website. At present, the IAPD database
contains Forms ADV only for investment adviser firms that
register electronically using the Investment
Adviser Registration Depository. You can also
get copies of Form ADV for individual advisers and firms
from the investment adviser, your state
securities regulator, or the SEC, depending on
the size of the adviser.
Have I paid off
my high interest credit card debt?
There is no investment
strategy anywhere that pays off as well as, or with less risk
than, merely paying off all high interest debt you may have. Many
people have wallets filled with credit cards, some of which they’ve
“maxed out” (meaning they’ve spent up to their credit limit).
Most credit cards
charge high interest rates—as much as 18 percent or more—if you
don’t pay off your balance in full each month. If you owe money
on high interest credit cards, the wisest thing you can do is
pay off the balance in full as quickly as possible.
Have I asked enough
As you can tell,
we’re really into asking questions. It’s the best advice
we can give you about how to invest wisely. We see too many investors
who might have avoided trouble and losses if they had asked basic
questions from the start. It doesn’t matter if you are a
beginner or have been investing for many years, it’s never a bad
idea to ask questions. Don’t feel intimidated. Remember,
it’s your money at stake.
In our "Ask Questions"
find some questions that you should ask about investment products,
the people who sell those products, and the people who provide
investment advice to you. It also contains some tips on
how to monitor your investments and handle any problems.
For more information
about investing wisely and avoiding fraud, please check out the
Investor Information section of our website at www.sec.gov/investor.shtml.