I have received a large lump settlement from my divorce. How should I invest it?

Even though your divorce settlement has been finalized, your work is not finished. You need to review your investment options carefully. Most importantly, you should find a financial planner with whom you feel comfortable and who will work with you in reviewing your financial situation at least annually.

In order to answer your question properly, I would need to better understand your personal financial picture, your age, goals and objectives, whether you need the money now for living expenses or if the funds will be earmarked for college for your children or for your retirement. Your risk tolerance level is also very important. You need to feel comfortable with the volatility of the investment. As we have seen recently in the stock market, even most of the stock mutual funds have decreased in value to a point that has made many investors fearful.

There are different investment options available for your short-term and long-term goals. We would need to evaluate whether the lump sum should be invested in a taxable, tax-deferred, or tax-free investment. Obviously, tax-free sounds the best, yet the returns may not be as great. But if you are in a high tax-bracket and may need the money in the near term, that may be the best choice. It’s not always the investment that is as important as the investment vehicle that makes it more appropriate (for example, an IRA, Roth IRA, or variable annuity). Remember, it’s the money that’s in your pocket after-taxes that we need to consider.

Remember, your marriage may be over, but the rest of your life is ahead of you, and you need to make wise financial decisions and know where you are going. You want to have enough money when you retire, not retire when you have enough money. When the divorce is final, one of the most important tools is a personal financial plan that will outline specifically how much you need to save to get where you want to go.

Connie Walsh is a Certified Financial Planner and Certified Divorce Financial Analyst who heads Divorce $olutions, part of Walsh Financial Services. Connie brings approximately 25 years’ experience in the financial industry, including 12 years on Wall Street, to her practice.