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It’s one of the most commonly-asked questions investment. And while the question seems obvious, some of the answers are often not so straightforward. This guide highlights the key considerations you’ll face as you decide what to do with your money. If you can address these, you’ll be on your way to making the most of your windfall.

Your goals: now and in future

Once the windfall lands in your bank or savings account it can pose some rather daunting problems. Should it go into a cash savings account, where it can earn a good rate of interest? Or is there the possibility of doing something more with it – and generate higher returns over time?

First, determine whether there are crucial needs for the money right now. These could include, for example, paying off expensive debt.

Next, consider the uses that you might eventually be putting this money toward. Could it be to help a child’s education costs? Or to help them fund a house purchase? The important factor here is when the money might ultimately be needed. If the target use is five or more years into the future, you could consider riskier investment options that offer higher long-term growth. If you are likely to need the money in the nearer-term, say within three years, then cash accounts might be a better solution.

Stock market investing: get time on your side

Stock market investing is risky in the short term but pays off over longer periods. In 2022 Schroders undertook a major piece of research looking at almost 100 years of stock market returns and comparing this with the returns on cash over the same period. We also took into account inflation.

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We found that if you invested for very short periods you would have a relatively high chance of making a loss if you invested in stocks and shares. So for one month, the chance of a loss was 40%. For 12 month periods, the chance of making a loss dropped to 29%; for five years it fell to 23%; for ten years 14% and for 20 years the chance of making a loss after inflation – based on 96 years’ worth of returns data – was zero.

In other words, history suggests that where you hold on to your investments for long enough, your chances of making a loss diminish significantly. By contrast holding on to cash over longer periods can be risky, because cash is less likely to beat inflation (see below).

A note of caution: while the figures above are very encouraging about long-term returns, don’t forget that stocks and shares can go up and down along the way. There may well be periods, especially in the early years, where your investments are worth less than you originally put in.

Investment returns upon returns: the magic of compounding

If you’re investing for a child, young adult or your own long-term goals, time can work its magic. “Compounding” describes the phenomenon in long-term investing where returns are re-invested as you go, and so attract further returns. Say you invested £10,000 at 6% per year for 30 years and simply drew the annual return of £600. Your gains would be £18,000 (£600 X 30), meaning along with your original capital you would have a total of £28,000.

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Compounding your returns, however, would result in much greater growth of your lump sum over the same period.

Lump-sum: save £10,000, assuming 6% annual returns*


*Compounded monthly

Cash and the poison of inflation

In the period since the Covid pandemic inflation has become a problem in many countries, including the UK. For many years preceding the pandemic this was not case, and as a result both savers and shoppers had become used to prices staying at relatively stable levels – this was what economists call a low-inflation environment.

Now however inflation is more of a consideration. While cash on deposit might earn attractive nominal rates, such as 5%, this still falls far behind the rise in prices, which in mid-2023 was between 8% and 9%.

As explained above, investing in shares offers a better chance of beating inflation than saving in cash accounts – provided you hold those investments for long enough.

The chart below crunches historic stock market returns from a very long time period (January 1926 to December 2022) in order to show the percentage of timeframes where shares and cash have beaten inflation.