Redundancy from an investment perspective
There will be those who walk into another job and can put their redundancy pay to good use, helping to secure their financial future.
On the other hand, there will be those who struggle to find another job, where the payout will have to pay for day to day living expenses in the interim. The problem is, most people aren’t sure which they will be until it happens.
For those who find themselves in the happy position of holding both a tidy lump sum and another job, the decision will be how to invest that lump sum to best effect: Will it be a fund for your children’s future? Or would you rather use it to fund an early retirement, change of career, or a place in the sun? It may be that redundancy has prompted thoughts of retraining. The answers to all these questions will help you establish how long you are investing for and how much risk you can take. This will guide where you invest.
Perhaps most usefully, the fund can be used to generate an income to offer some protection in the event of future job loss. A long-term investment in an equity income fund can deliver an income of 4-5% per year. Investors may also receive capital growth – the average equity income fund is up 35% over the past three years, though the capital will always be vulnerable to stock market movements. If you invest through an ISA, this income stream can be tax-free. This can be used to fund school or university fees, or simply a better lifestyle. You will also have to decide whether you are going to invest it in one-go or drip-feed it into the market.
For those who need the payout to fund living expenses while they hunt for another position, the options are more limited because they cannot take any risk with the capital. The ideal would be to invest the lump sum to generate an income from which living expenses can be paid, but investors should first aim to reduce those living expenses by paying down debt.