Lump Sums, Bad Decisions

If anything is going to go wrong, it’s going to go wrong at the point of maximum stress.

As a space shuttle first takes off, the scene may be spectacular but the rocket has not yet picked up enough speed to place real stress on its structure. In a similar vein, by the time the shuttle climbs out of the earth’s atmosphere the air is incredibly thin - no longer dense enough to form any kind of real resistance.

The term “Max-Q” refers to the point in time in between where the speed of the rocket and air density combine to create the highest aerodynamic stress on the shuttle’s structure.

As well as being the point where the crews’ faces get a bit flappy, it is also the point of maximum jeopardy.

As we move through our financial lives, there are certain points in time where circumstances combine to create more stress.

Drawdowns in the value of our investments are an obvious one. Moving into retirement, where we shift to spending our hard earned without the safety net of an ongoing income.

But the receipt of a large capital sum also shifts our financial world on its axis. Today is not the same as yesterday.

Whether due to luck, the generosity of others’ or the culmination of a life’s graft - receiving a large amount of money in one go can present danger in maybe a less obvious way.

It changes how others think about us. Professionals who once wouldn’t have given us the time of day, suddenly very interested in booking a meeting. “You’ve got access to the good stuff now”. Make like the elephant and try not to forget.

It may even change how we feel about ourselves. A big capital injection opens up a world of opportunity - the siren song of status ever more difficult to ignore. “I deserve this, I earnt it”. Maybe - but remember that the people who really care about you, couldn’t care less about the things you own.

When someone receives a large capital sum, my advice is always the same - “take a beat”.

In the same way that many rockets throttle down their engines as they approach Max-Q to reduce stress, when our financial lives change overnight it is important to take a step back.

The absolute best thing about money, bar none, is that we can use it to buy time. That most precious of commodities.

It is absolutely critical at times like these to take your time - good decisions are made slowly. Don’t be browbeaten into doing anything, or allow speculation as to what other people might think to determine your decisions.

By taking the time to really think about what we want, and to get a solid plan in place, we can both reduce the potential for unforced error and maximise the chances of getting maximum enjoyment from our money.

Which is, as ever, kind of the point.

Past performance is not indicative of future returns. None of the above is intended to constitute advice to any individual. If you have any queries regarding your specific situation, please consult with a regulated financial adviser.