Guest Article: What Should I do with £2m?
Insights by Nick Rolf, Director of Private Clients, Investment Quorum.
Getting to the ‘two-comma club’ has often been an ambition for entrepreneurs and lottery players alike. If you have recently achieved this goal through selling your business, then you are probably considering how to get the most out of it. It might be worth considering a few things before splashing out on the sailing yacht you have been eyeing up in St Tropez.
What is this money for? That is the question that you should first ask yourself.
Do you need an income? Having just sold your business, and with it the salary/dividends that you used for everyday expenses, you might need to reward yourself a regular payment.
Maybe you earmarked some of these funds for a future investment idea – perhaps looking to emulate your previous success?
Now might be the time to pay off all your debts and have real financial freedom.
Once you have given careful thought to the purpose of your money, it is time to create a more finely tuned financial plan.
We would recommend allocating your funds into different pots associated with your short, medium and long-term goals. That way, you can manage the risk versus the return that you need to take with each one.
Ideally you keep the equivalent of at least 3 months expenditure in readily accessible cash. The level of risk you take on your short-term goals should be very low, to preserve and protect your money.
But sometimes there might be a danger of taking too little risk over the longer term and your capital gets eroded by inflation. For example, if inflation remains high at around 4% per annum, this should be your minimum level of long-term annual growth.
If you required an additional £100,000 annual income starting in 10 years’ time, there is a possibility that this is unsustainable for the longer term unless you take an appropriate level of risk. You need to take some investment risk to avoid future inflationary pressures.
Your different pots might look a little like the example below:
|3-6 months expenditure
|4% – paid out
|6% – accumulating
|New home/Holiday home
Your short-term needs are covered by your cash.
Your income is provided by an income focused pot. This could be a high yielding portfolio of stocks and bonds, or indeed a buy-to-let property. Income is the focus.
You also have pots allocated to your retirement, seeking larger returns.
You have done it. You have sold your business and you have been rewarded for it. Enjoy the money!
By all means buy the bigger house, the yacht or the all-inclusive holiday to the Maldives. Provided you have made some consideration to what happens next, you should do the things that make you and your loved ones happy.
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ABOUT: Nick Rolf