QUESTION: I was recently made redundant. I am in possession of a lump-sum payment totalling $4 million. I already own my home and a relatively new pickup in excellent condition and loan free.

I have no other loan of any sort. My credit cards are paid up. I have a monthly expense of $20,000 on average. What are the best investment options available to me to maximise my returns? I am a final-year UWI student.

- Andy

PFA: The same basic investment principles apply whether the sum being invested is a lump sum, a windfall, or a relatively smaller, programmed amount. These principles, if followed, should lead to the realisation of established goals.

To invest successfully requires establishing realistic goals, understanding your own emotional relationship with money, determining your risk tolerance, diversifying to manage risk, determining the need to access cash, and setting a time line for achieving your financial goals.

no need to worry

Ultimately, the success of an investment programme will depend on the asset mix or asset allocation, that is, how money is distributed among the various asset classes. Although it is generally long term, the asset mix may change as personal and financial circumstances and goals change.

In your particular case, there are certain matters that you do not have to worry about. You already own a home - though you have not said if it is fully paid for. You own a relatively new vehicle. You are debt-free so you do not have high-cost debt to liquidate before considering what other decision to make.

The first thing I recommend you do is determine clearly what your goals are. Next, prepare your net-worth statement. Make a list of your assets, stating their values, under the following headings: liquid, investment, business, personal

Likewise, list your liabilities: short-term personal debt, business debt, long-term personal debt.

Your net worth is the difference between your total assets and your total liabilities. By taking a careful look at this statement, you should see if your financial affairs are ordered to reflect your priorities and your goals.

questions to Consider

Consider the following questions and answer them after doing a careful analysis of your net-worth statement.

Do you have an adequate number of liquid assets? Are personal assets high relative to investment and business assets? Is your investment portfolio skewed to short-term instruments or long-term instruments? Is it skewed in favour of income or capital appreciation?

The following do not seem to apply to you but are questions worth asking when questions like yours arise.

Is the level of debt too high? Is there room to borrow to improve your long-term financial position?

When you have done that analysis, you should be in a good position to determine what to do.

Surely you have goals clearly set in your mind, if not on paper? When do you want to realise those goals? Whatever you do should fit into your overall plan. Each part of the plan impacts the full plan.

Although it is good to have personal assets, it is your investment assets that ultimately drive your net worth. If your analysis shows a deficiency there, address it, but remember the need for balance.

Diversification is key to the success of your programme.

Take time to decide how you will proceed. You may want to invest in your own business. If you need to invest for capital appreciation, you will no doubt want to invest in equities, unit trusts that invest for capital growth, or even real estate. Considering the state of the markets, it is prudent to go at a measured pace.

Avoid diving into the markets heavily now.

Consider investing in money-market instruments in the short term, moving into other areas as the opportunities arise.

You may wish to hedge against depreciation of the Jamaican dollar by investing in hard currency. Invest for tax efficiency as well.

long-term plan

Although you have not said what your age is, remember that you need to plan for the long term. You may want to establish a retirement fund if you do not have one. The earlier you begin the better.

Aim to establish an asset allocation that reflects who you are and what your goals are. Let it guide you in making your decisions and select investment vehicles that do not expose you to risk you cannot tolerate.

Oran A. Hall is principal author of The Handbook of Personal Financial Planning'. For free advice, email: finviser.jm@gmail.com.