How should I invest the money I am receiving from a financial settlement?

I am anticipating receiving a financial settlement from an accident. I anticipate receiving between $190,000 and $250,000 in the settlement. I want to use this money to help secure my family's future. I have three ideas for where to invest this money and want to know what the best option would be. My ideas include purchasing a home and renting it out, investing in the stock market, or purchasing a franchise. From my research it seems like all options are viable. Do you have any advice on what the best option would be, or have a different suggestion that I haven't thought of?

Estate Planning, Investing, Real Estate, Stocks
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3 weeks ago

This is an interesting question and it would really help to have more information.  It would be great to know more about your current financial position such as income, expenses, debt, mortgage or rent, retirement plan, insurance assessment, credit score and more.  

All three of the ideas you mentioned could make sense in many situations.  One thing you should consider with your settlement is diversification.  You may want to invest $50,000 in a rental property, $50,000 in the stock market, $50,000 in a franchise and the remaining $40,000 - $100,000 could be used to pay off debt and build up your emergency fund.  

Here are some things to consider about each investment option you mentioned.  First, for rental properties, you may want to speak to a lawyer about the pros and cons of putting the rental home in a separate trust.  You may also want to consider multi-unit properties to diminish the effects of vacancies.  You will have to review your credit score before applying for financing and make sure not to have too many "hard credit" checks in the process.  Each hard credit check can drop your credit score between 2-7 points.  That may not seem like a lot but it can add up when there are 5-7 credit checks in a short period. You will want to carefully analyze the cash flow on the property and consider the CAP rate. 

Second, for your investment in the stock market, you may want to work with a fee-only Financial Planner who can help you determine your risk tolerance and investment objectives.  Fee-Only Advisors do not earn commissions from selling products which makes them less biased towards investment products.  Determining your risk score can take the guesswork out of investing.  You can check your risk score for free by clicking this link.    

Purchasing a franchise could be a nice option depending on how hard you want to work, what kind of franchise you are considering, where the business is located, and how well the franchise is run.  But there is plenty of risk involved in operating a franchise.  Sometimes, you get franchise owners who only show up at the end of the month to collect their check.  Therefore, you will want to seriously weigh the pros and cons and perform due dilligence in researching the right franchise for you.  It might be helpful to speak to other franchisees and get their opinions.   

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