How to Invest Large Sums of Money

Best Ways to Maximize a Lump Sum Distribution

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Whether you want to invest a lump sum from a 401(k) or IRA rollover, a tax refund, inheritance, or even lottery winnings, there are a few smart ways to manage a large amount of cash. These tactics are true no matter what the stock market or economy is doing at the time. Here's what to do before and after you receive your lump sum.

Choose an Advisor

Unless you have experience with investing, you may want to speak with a financial advisor before you decide what to do with your cash. In most cases, a fee-only adviser with a Certified Financial Planner (CFP) designation is a wise choice because stockbrokers, bankers and insurance companies usually work for commission. When they're getting paid to sell you a particular investment over another, they may not be working entirely in your best interest.

Before You Receive Your Lump Sum

Depending on how much money you are due to receive, and assuming you have a little time before you receive your cash or check, you should begin looking for a place to hold your money. It's important not to rush the decision. Research savings vehicles or security types carefully to invest your cash.

You may have more than one use for your cash windfall. For example, you may want to pay off debt with a portion, give some away, use some for a well-deserved vacation and use the remainder to invest for retirement. Any amount you do not use within a few weeks' time can begin earning interest.


If you have any high-interest consumer debt, such as credit cards, it's a good idea to pay that off before you invest any money.

Consider Short-Term Liquid Options

In most cases, you will invest in a money market fund for short-term cash needs. Money market funds are interest-earning savings vehicles that are liquid, which means you can generally deposit and withdraw from them at any time (or at least a limited number of times per month) without penalty or fees.

Investors can typically buy money market funds at mutual fund firms, brokerage firms, and banks. Vanguard Cash Reserves Federal Money Market Fund (VMMXX) and Fidelity Government Cash Reserves (FDRXX) often have some of the highest yields for the larger, well-known financial institutions.

(As of June 21, 2021, the Vanguard Cash Reserves Federal Money Market Fund was closed to new investors.)

Determine Your Objectives

It may sound too obvious, but you need to have a vision or structure for your money, or what will eventually be your investment portfolio, before you invest it beyond the money market fund. You don't want to leave your cash in a liquid savings vehicle like that for too long, or you may be missing an opportunity to make your money work harder for you. Before you can decide that, though, you need to know what you're hoping to earn and why. A financial planner would call that vision your "investment objective."


Determining your investment objective involves answering several questions about your money. What do you ultimately want to be able to do with it? How soon do you need it? How much do you want to grow? How much risk are you comfortable with?

Lump-Sum Investing vs. DCA: Jump in Now or Slowly Invest Over Time?

Whether you put all your cash to work immediately or periodically invest portions with dollar-cost averaging (DCA), you need to base your decision on your investment objective and risk tolerance, not what is happening in the stock market or economy at the given moment.

For example, if your time horizon is 20 years, you can invest the entire lump sum of money into your chosen investments all at once, because the total return over that long of a period of time will not change much by timing that far in advance. There is more risk of decreasing your average returns by leaving too much of your cash in a money market account rather than investing it immediately.

People who may want to dollar-cost average into their investments include those who have low risk ​tolerance ​or those investors whose time horizons are not clear. For example, a person in their 60s who is saving for retirement may still have a 20-year time horizon. However, they do not know with certainty how long they will live. Therefore, that person may want to dollar-cost average their lump sum into their investments over a period of time, such as one to two years. That way, if there is a dramatic decline in stock prices, the investor can minimize losses and maximize future returns by investing a specified amount, once per month, over several months or a few years.

The Bottom Line

To summarize, the primary deciding factors in figuring how to invest your windfall will be your investment objectives, risk tolerance, and what you want the money to do for you in the short run and in the long term. Consulting with a financial advisor can help you sort out these factors and decide what to do with your money.

Frequently Asked Questions (FAQs)

If you invest a large sum of money, how do you eventually get paid from that investment?

The method you'll use to draw funds from your investment depends on how you initially invested the money. If you started your own business, then paying yourself may be as easy as writing yourself a check. When it comes to investments like stocks, bonds, and ETFs, you typically profit from either capital gains or passive income. Capital gains occur when you sell something (like a stock or bond) for more than you paid to buy it. Passive income occurs when you are paid for holding the investment, such as stock dividends or money market interest payments.

How do you transfer large sums of money?

There are a few ways to transfer money between financial institutions. If you own two accounts, you may be able to use a bank-to-bank transfer after linking them. You can also use an ACH transfer, a wire transfer, or a payment app, but those services may come with additional costs. An old-fashioned check can help get the job done, too.

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