What would you do with a £50,000 windfall?

A windfall inheritance can come unexpectedly, and as a result many might not be prepared to deal with the money they receive – especially if it is a hefty sum.

With the so-called 'great wealth transfer' set to see an estimated £5.5trillion passed down over the next 25 years, more people will find themselves on the receiving end of significant sums of money.

Now, exclusive data for This is Money by Fidelity shows a lack of risk appetite means a large chunk might be to nervous to invest this money, while others don't have a full understanding of how to invest.

Failing to do so could torpedo any possibility of seeing a healthy return from such an inheritance.

When asked what they'd do with a £50,000 one-off payment, UK retail investors said just 34 per cent of the windfall would be invested, amounting to just £17,000.

Fidelity surveyed 1,000 UK retail investors, meaning that the percentage of funds invested by those who do not currently invest would likely be considerably lower.

A tenth of these investors said a windfall – whether a gift, bonus or inheritance - was the reason they were investing money in the first place.

Investors said they would allocate a larger proportion of the windfall, 35 per cent, to savings instead of investments, while they would also spend 15 per cent, or £7,500, straight of the bat, potentially on holidays, home improvements or one-off luxury goods.

For a smaller windfall, of £5,000, investors would choose to invest an even lower proportion of the funds, just 31 per cent.

Instead, they would choose to save 38 per cent of it and spend 17 per cent of the funds.

Investors would use just 7 per cent of £50,000 and 8 per cent of £5,000 to debt repayments, the data shows.

Ed Monk, associate director at Fidelity International, said: 'The great wealth transfer is underway and many people in the years ahead will find themselves receiving a lump sum from inheritance.

'Regardless of the size of the windfall, it's important to have a plan in place for how you would use the money.

'Naturally, many of us might spend a small amount of this and indulge or use it to pay off any debts we may have, but after that there is a question about whether investing or saving is best.'

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However, Fidelity highlights that a windfall inheritance can provide the perfect opportunity to make the most of long-term investment opportunities.

Many Britons are loathe to invest, often due to a lack of understanding on how investment works.

Chris Cummings, chief executive of the Investment Association, said: 'Many people in the UK may be taking one of the biggest financial risks of all: taking no risk.

'We must create a culture of inclusive investment that educates and encourages people across the country to make financial decisions that benefit them both now and for the long-term.'

Figures from Fidelity indicate that a £10,000 investment in the S&P 500 over the past five years would have increased to £18,474. The same figure invested in the FTSE 100 would have returned £16,383.

The growth in these investments would be considerably higher if held for longer periods. A 20 year investment of £10,000 in the S&P 500 would have returned £81,615 as of 30 April this year.

It is important to note than investments should be highly diversified in order to mitigate risks.

Around a third of the value of the S&P 500 sits with just seven companies, known as the 'magnificent seven'. While these have seen strong growth in recent years, a downturn could see your investments tumble rapidly.

Monk added: 'Our data highlights exactly how strong the opportunities have been for investors over the past five, 10 and 20 years.

'While there is no guarantee we'll see a repeat of this performance in the years to come - and with recent volatility a reminder that markets can both rise and fall - the figures do help to paint a picture of the long-term growth opportunities created by investing.

'While a windfall is a lump sum, you can still drip-feed regular contributions rather than investing the full amount in one go.

'For those who have or will be receiving a financial windfall, investing this sum – whether some or all of it – can boost your finances even further, and help achieve your financial goals sooner.'