How To Invest Inheritance

If you’ve recently come into some inheritance, you might be questioning what to do with it.

How To Invest Inheritance?

Regardless of the sum of money you’ve been given, it’s important to use the money wisely and carefully think through your options as it could give you a great opportunity to increase your assets. 

Investing your money may seem risky, but with careful planning, you could make yourself a steady stream of income by investing your inheritance.

Firstly, it’s important not to rush into anything, if you’ve just lost a loved one, taking all the time you need to grieve is the best thing you can do for yourself. 

What Inheritance Have You Received?

There are a number of assets that can be left to another person including money, real estate, stocks and personal items such as jewellery. Here we will talk about assets that can be used as investments.

Receiving Real Estate

If you’ve been left a piece of real estate, you first thought might be ‘let’s move in’. This isn’t always the best option depending on location, size of the property and how affordable the bills would be. 

Luckily, if you decide that living in the home isn’t the right decision for you then you can always sell it.

Therefore, you receive an influx of cash upfront that you can reinvest into other areas such as paying off debt or investing in stocks.

This can also be a huge tax saving as you’ll only pay taxes if the home sells more than its worth at the time of inheritance.  

Renting out the home is another option which can create a steady cash flow into your bank account.

However, unless you want to hire an agency to maintain the property and find tenants this responsibility will fall upon yourself which can be stressful and time consuming. 

Receiving Money And Securities 

If you’ve been left a lump sum of money, you may be tempted to store it in your savings.

Saving is definitely the safer option but it will not result in accumulated wealth in the long run. Investing in stocks and the like can have much higher returns. 

If you receive securities, you can choose to keep or sell these depending on the current rates of the stock. Read the section below to find out how to invest your money in stocks. 

Why Invest Your Inheritance? 

For those who have no experience of investing their money, it can be daunting.

If you think that investing is the right thing to do with your inheritance, it can make sense for many reasons. 

Investing in a diverse range of stocks, bonds and funds could increase your original total.

You must evaluate your risk tolerance first. This is the amount of risk you’re willing to invest in order to see a return.

Secondly, you’ll need to identify when the money will be needed which may determine where the money is placed. 

Placing the money into a retirement account generally means the money cannot be accessed before a certain age.

Making a high-risk investment might not be a good idea if you need the money in the foreseeable future as investments that fall may not have enough time to recover. So, if you need the money, it won’t be there when you need it. 

What To Invest Your Inheritance In

What To Invest Your Inheritance In

There are different avenues you can take when investing, the most popular and logical routes to take include:  

  • Stocks, bonds or funds
  • Property and real estate
  • A retirement fund 
  • Paying off credit card debt and personal loans 
  • Creating an emergency fund 

Paying off any existing debt is always a sensible idea, the leftover money can always be used to invest in other areas to build for the future. 

How Can Age Influence Your Choices?

Age can influence your investment decisions. For example, those under the age of 30 may use their inheritance to buy a house or pay off a mortgage.

If you’re a little older it may go towards children’s college fees or starting a business.

Making sure the investments you choose to make align with your future aspirations is essential. 

Seeking Advice 

Whether or not you choose to seek advice usually depends on the sum left to you.

Finding yourself with a considerable amount of money can be confusing but professional guidance can assist you in making decisions you’re comfortable with as well as creating a long-term financial plan that encompases all your assets for best results. 

A fee-only financial planner charges you for their time but doesn’t receive commissions for pointing you in the right direction, toward any particular investments.

The financial planner can also help you deal with non-cash assets such as securities, advising  the best time to sell or buy something else instead. 

Understanding How Your Inheritance Will Be Taxed 

Assets left when people die can be subject to different forms of tax. Inheritance tax is imposed in some states and  must be paid by the recipient of a bequest. Luckily, inheritance tax isn’t common in the US and only applies to six states.  

When transfers of property from one person to another occur in the US they are subject to Gift Tax if the person is still alive or Estate Tax if the person is dead.

Federal estate taxes are paid when assets exceed the threshold. As of 2022, this is valued at estates with a market value of $12.06 million. US citizen spouses are exempt from this tax. 

Closing Thoughts 

Inheriting money can feel like a blessing and a burden all in one. Taking the time you need to carefully consider how to use this money is vital after experiencing loss.

The type of inheritance you receive, the tax restriction and the age you receive it can all influence your investment decisions. 

There are many avenues to consider, but investing your money in assets that may appreciate in value over time is a strong option. 

We hope you found this article interesting and informative on your investment journey.

Luke Baldwin
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