Divorce: Investing Your Financial Settlement

 Opinions expressed by Forbes Contributors are their own.
From a financial perspective, not much good comes from a divorce. Invariably, two households need to be supported from the same pool of income and assets that existed when the couple was married.  Although both parties need to adjust to their post-marriage financial realities, generally, the transition is more difficult for the financially less sophisticated partner, the “nonmoneyed spouse.”

If you are in this position, often there is a cash settlement that you likely will need to partially or fully fund many years of your ongoing lifestyle. As many who have been in a similar position have learned, converting cash into a diversified investment portfolio that generates sufficient returns for the next 10, 20 or 30 years, at an acceptable level of risk, is very challenging.

Following the financial settlement, there often is a sense of relief knowing there is cash in your account from which bills can be paid. And for the very short term, at least until you have a chance to find your bearings, sitting on cash is smarter than investing impulsively. However, most quickly learn that current living expenses quickly will eclipse the paltry earnings of money market accounts. As uncomfortable as investing often is, there’s really no alternative as you will need to grow your asset base while generating returns to support your new lifestyle.

Investing is all about constructing a portfolio that provides the total return required for your lifestyle at a level of risk that you find acceptable. This is a challenge even for highly experienced investors and very frightening for novices, especially when one cannot meaningfully replace lost capital. For the investing novice, finding and working with a quality investment advisor is essential.

If you are new to investing, start reading up on investments. Get familiar with various asset classes and how they work together to reduce portfolio volatility (risk). You also should develop an understanding of investment fees, taxes and the impact of inflation on future purchasing power.

The process of selecting an investment manager often is uncomfortable as we all are afraid of making a costly mistake. My advice is to go online and read the many articles and checklists on “how to select an investment manager.” I also recommend speaking with friends and trusted professionals – perhaps your divorce attorney and start interviewing until you find two or three potential advisors who “check the boxes” and with whom you feel comfortable.

After allowing yourself a week or two to reflect on the interviews, review your checklists and meet with the finalists again prior to your final decision. Although some choose to follow the path of do-it-yourself investing, or work with “robo-advisors,” my view is that a trusted relationship helps an investor keep the course in the face of inevitable market volatility.

Without relying on the counsel of someone who has experienced several market cycles, a novice investor is likely to pull out of the market at the worst possible times. Watching the portfolio that you depend on a decline in value is extremely difficult, but with the right advice and a good financial plan, it’s possible to minimize the damage. Good luck!

Source: Divorce: Investing Your Financial Settlement

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