written by: Faith Oh•edited by: Jason C. Chavis•updated: 6/27/2011
If you have just received some money as part of a law settlement the next question becomes how to invest lawsuit settlement money. It's OK to take your time until you are ready. This article will help with ideas on possible investment approaches for when you are ready to take the plunge.
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When you come upon extra money, it is easy to go on a spending spree and start buying all those things you think you deserve and have 'deprived' yourself of all along. While this may be one approach to spend your new found wealth, most people will agree it is not the most prudent. You may also have the good intention of investing the money but an unplanned or haphazard investment may end up being as good as or even worse than a shopping spree at your local mall. So how to invest lawsuit settlement money?
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The Perfect-Pie Investment Strategy
One of the most practical and uncomplicated investment strategies out there today is from financial advisor and best selling author David Bach. He is the author of The Automatic Millionaire and similar books. Bach advocates a perfect-pie investment strategy that is so easy to understand and monitor and you don't have to be a financial genius to adopt this approach. Also it provides a diversified portfolio that will help reduce risk in especially uncertain times. Think of it as a system for the regular Joes and Janes.
Here is how it works. You divide whatever amount of money you have to invest into three groups to make three equal parts of a pie chart. One goes to stocks or securities (equities), one to real estate and one to guaranteed investments. Now how much you get to buy into depends on the actual amount of money to be invested. For example, a $2,500 settlement will not buy you a house to fit into the real estate pie but you could buy into real estate mutual funds or REITS (real estate investment trusts).
Stocks or securities will involve investing directly into the stock market through a broker or buying directly into a company or companies that are publicly traded. Real estate would cover investments involving such things as buying land, a house, parking spot(s), condos or timeshares.
Guaranteed investments such as are bonds, tax liens, and certificates of deposit that yield a guaranteed rate of return.
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Seek Professional Help
While the perfect-pie approach has proven successful for many people, you will still have to do your own research and due diligence as well as get professional help before you make any major financial decisions. It is often said that free advice is the most expensive kind of advice because the mistakes once made, can be very costly. You should contact your financial advisor and if you do not have one, you should find one. Make sure you are working with a financial advisor who charges you for the time he spends with you and not based on the commission he gets from the financial products he sells to you. Advisors whose pay is based on commission are biased and do not fully represent your interests. You can find an independent fee-only financial advisor through the National Association of Personal Financial Advisors (NAPFA).