Two Ways to Invest a Cash Windfall | Morgan Stanley (2024)

Footnotes:

1This seven-year timeframe captures the average length of a market cycle and reflects the strategic time horizon for the Global Investment Committee’s capital market assumptions.

Disclosures:

For index, indicator and survey definitions referenced in this report please visit the following: https:/ www.morganstanley.com/wealthinvestmentsolutions/wmir-definitions

Monte Carlo Analysis Assumptions: As indicated above, the hypothetical (forward-looking) analysis uses a Monte Carlo simulation to generate randomized, correlated returns that overall have similar characteristics to the Global Investment Committee’s 2020 strategic (seven-year) capital markets assumptions. The Monte Carlo simulation involves sampling from those monthly returns for the constituent asset classes. From those monthly returns, we can compute hypothetical monthly returns for portfolios constructed with a lump-sum investing or dollar-cost averaging approach as of any month in the simulated returns data.

IMPORTANT: The projections or other information generated by this Monte Carlo simulation analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.

Glossary

Correlation is a statistical measure of how two securities move in relation to each other. This measure is often converted into what is known as correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation coefficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally described as weak.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Risk Considerations

Investing in the market entails the risk of market volatility. The value of all types of securities may increase or decrease over varying time periods.

This analysis does not purport to recommend or implement an investment strategy. Financial forecasts, rates of return, risk, inflation, and other assumptions may be used as the basis for illustrations in this analysis. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. No analysis has the ability to accurately predict the future, eliminate risk, or guarantee investment results. As investment returns, inflation, taxes, and other economic conditions vary from the assumptions used in this analysis, your actual results will vary (perhaps significantly) from those presented in this analysis.

Any type of continuous or periodic investment plan does not assure a profit and does not protect against loss in declining markets. Since such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities, the investor should consider his financial ability to continue his purchases through periods of low price levels.

Active or frequent trading to effectuate a dynamic allocation strategy entails greater risk and is more speculative, but also entails the possibility for above-average returns, compared with a long-term investment strategy. It may also entail more costs and fees, as well as a larger and more immediate tax liability.

Hypothetical Performance

General: Hypothetical performance should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.

Hypothetical performance results have inherent limitations. The performance shown here is simulated performance based on benchmark indices, not investment results from an actual portfolio or actual trading. There can be large differences between hypothetical and actual performance results achieved by a particular asset allocation.

Despite the limitations of hypothetical performance, these hypothetical performance results may allow clients and Financial Advisors to obtain a sense of the risk / return trade-off of different asset allocation constructs.

Indices used to calculate performance: The hypothetical performance results in this report are calculated using the returns of benchmark indices for the asset classes, and not the returns of securities, fund or other investment products.

Indices are unmanaged. They do not reflect any management, custody, transaction or other expenses, and generally assume reinvestment of dividends, accrued income and capital gains. Past performance of indices does not guarantee future results. Investors cannot invest directly in an index.

Performance of indices may be more or less volatile than any investment product. The risk of loss in value of a specific investment is not the same as the risk of loss in a broad market index. Therefore, the historical returns of an index will not be the same as the historical returns of a particular investment a client selects.

The assumed return rates in this analysis are not reflective of any specific investment and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific investment may be more or less than the returns used in this analysis. The return assumptions are based on hypothetical rates of return of securities indices, which serve as proxies for the asset classes. Moreover, different forecasts may choose different indices as a proxy for the same asset class, thus influencing the return of the asset class.

Equity securitiesmay fluctuate in response to news on companies, industries, market conditions, and general economic environment.

Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.

Investing in foreign markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators, and government intervention.

Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.

Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circ*mstances, objectives and risk tolerance before investing in high yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.

Ultrashort-term fixed income asset class is comprised of fixed income securities with high quality, very short maturities. They are therefore subject to the risks associated with debt securities such as credit and interest rate risk.

Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.

Rebalancing does not protect against a loss in declining financial markets. There may be a potential tax implication with a rebalancing strategy. Investors should consult with their tax advisor before implementing such a strategy.

The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.

The indices selected by Morgan Stanley Wealth Management to measure performance are representative of broad asset classes. Morgan Stanley Smith Barney LLC retains the right to change representative indices at any time.

Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Past performance is not necessarily a guide to future performance.

Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation and to learn about any potential tax or other implications that may result from acting on a particular recommendation.

This material, or any portion thereof, may not be reprinted, sold or redistributed without the written consent of Morgan Stanley Smith Barney LLC.

© 2023 Morgan Stanley Smith Barney LLC, Member SIPC.

CRC# 5802549 (07/2023)

Two Ways to Invest a Cash Windfall | Morgan Stanley (2024)

FAQs

What is the best thing to do with a cash windfall? ›

  • Pay down your debt. If you have debt, your new windfall could make a big dent in it. ...
  • Save for retirement. ...
  • Invest in the stock market. ...
  • Buy yourself something small. ...
  • Donate to a cause you care about. ...
  • Don't forget about taxes. ...
  • Or insurance! ...
  • What's your plan for a windfall?
Mar 14, 2024

What are the strategies for windfall investment? ›

Some of the most common strategies include: Strategic asset allocation: This involves setting and maintaining a target mix of assets based on your long-term objectives and risk profile. For example, you may decide to allocate 60% of your portfolio to stocks, 30% to bonds, and 10% to cash.

What's the best way to invest a lump sum? ›

Cash savings are always popular with people who want to put away a lump sum and earn interest over a long period of time. This can be a very good way to save for things without taking on bigger levels of risk. Savings accounts are much safer, but how much interest you earn will come down to your bank's interest rate.

How much money do I need to invest to make $3 000 a month? ›

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.

What's the best way to invest a $250 000 windfall? ›

Best Investments to Invest $250k for Income
  • Dividend Stocks. Companies can issue dividend stocks, meaning shareholders receive quarterly distributions when business is going well. ...
  • Money Market Funds. ...
  • Real Estate. ...
  • Certificates of Deposit. ...
  • Bonds. ...
  • Peer-to-Peer Lending. ...
  • Real Estate Trusts (REITs) ...
  • Annuities.
May 18, 2023

Should you pay off debt or invest in a windfall? ›

Some debts are better than others but if you're mired in credit card bills, using your windfall to pay them off may be your best bet. If you're paying a lot of money in interest each month to the credit card company, it can easily outweigh the return you'd get by putting all the new money in a regular savings account.

What are two strategies the rich use to invest? ›

  • They put their money into homes. Owning a home (or two) is where many wealthy people have their money tied up. ...
  • They buy stocks. The second-most popular place where wealthy people put their money is into stocks. ...
  • They own commercial property.
Nov 12, 2023

What to do with $50,000 inheritance? ›

Before spending any of your inheritance, it's a good idea to make a plan for how you'll handle it. Some choices include creating an emergency fund, paying off high-cost debt, building up retirement savings, saving for kids' educations and buying personal luxuries.

What are the pitfalls of windfall? ›

Pitfall #1 – Hasty decision making

No matter the source of the windfall, financial inheritances trigger visceral emotional responses to this sudden change in circ*mstance. The best course of action to take after a windfall is to do nothing – at least for a while. Taking the time to take a step back is encouraged.

What is the smartest thing to do with a lump sum of money? ›

1 – Free your income. 2 – Create cash flow. 3 – Put a down payment on a property. 4 – Save for long-term growth.

How much of a windfall should you spend? ›

Many experts recommend setting aside a small portion of your windfall—perhaps 5 or 10 percent—as fun money. If this seems wasteful, consider whether allowing yourself some indulgences within predetermined limits will help prevent impulse spending down the road. Next, consider paying down debt.

How much money is considered a windfall? ›

A financial windfall is when you receive a large, often unexpected, amount of money. It could be thousands or even millions of dollars, but either way, making a smart strategy is essential to getting the most out of your financial windfall.

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