Investing an Inheritance: 4 Expert Tips

Sep 6, 2017 | Blog, Estate planning

When it comes to investing, when you suddenly receive an inheritance it can be anything but straightforward. Often, this inheritance comes with complex emotions if its tied to a loved one or family member; leading to rash choices or decision paralysis. Emotions aside, it can seem daunting and complex to deal with a large amount of wealth at once, especially if you haven’t before.

Thankfully, there are some simple steps for investing an inheritance successfully and removing guesswork and confusion from the equation:

First, cool down

If this sudden wealth is tied to the loss of someone close, your emotions can become your worst financial enemy. It’s far too common to see people exhibit irrational spending and investing behavior because they are still processing the loss, or tie their emotions to wealth. For instance, erratic overspending on luxury items can occur.

That’s why I often recommend that grieving individuals wait before deciding to do anything with their inheritance. After your emotions cool, you can begin crafting a rational long-term strategy because you have a clear head.

Asses the tax implications 

Before investing, consider the tax implications of the wealth you inherited. After all, it’s not what you earn that matters, it’s what you keep. For instance, with an IRA, liquidating assets that haven’t been taxed yet can result in you needing to pay the whole entire tax balance at once. It’s well worth it to do your research, or consult with a trusted financial advisor and/or tax specialist before liquidating or reinvesting the wealth you’re inheriting.

Keep your allocation in check 

If you already have a portfolio, investing an inheritance can throw off your preexisting asset allocation, which can be one of the most important aspects of it. In case you’re unfamiliar, asset allocation refers to how heavily your portfolio is skewed towards different investments – for instance, how much of it is composed of fixed income. Transferring in new investments or using cash to invest heavily in one investment vehicle could throw off this allocation – so it can be useful to rebalance your portfolio and keep your asset allocation in mind during the process.

Get help if it’s a large sum (to you)

If the inheritance represents a large amount to you – or is big in absolute terms – it can be well worth the investment to seek professional help, especially if you’re unfamiliar with investing. The right advisor will have experience managing all the financial aspects of investing an inheritance, and help you utilize it to reach your long-term goals and needs.

At LexION Capital, we craft bespoke portfolios based on individual’s needs and goals. If you’d like to learn more about how we can help you with investing an inheritance – or any other financial goals – let’s have a conversation

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