What should I do with an inheritance?
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A question which comes up regularly at Bounce Financial and something which doesn’t have a simple answer is “what should I do with an inheritance”. Receiving an inheritance is a bit of a double edged sword, on one hand, you are lucky enough to come into some money which you may apply to improve your life, on the other hand, you have just lost a loved one and may make a rash decision based on your emotional state. I ALWAYS recommend to people that if you receive an inheritance, you should seek financial advice. So what should you do with it? Well it isn’t that simple. Like all investments, investing an inheritance should be based on your goals. |
In a perfect world, you already have a financial planner, clearly defined goals and simply apply this money towards those goals (or modify your goals based on this new improved bank balance). However, in reality a lot of people who see a financial planner after receiving an inheritance are getting advice for the first time.
Investing an inheritance is a lot like investing any large sum of money, the appropriate investment vehicle will depend on your age, goals, tax rate, how long you wish to invest for, your risk profile etc. This can be a bit of a complex formula and if you get it wrong, the result can be disastrous.
The first 3 areas I’ll look at are as follows:
I’ll always consider the debt that you have, and whether paying off all, or at least part of it is the best option for you.
You may wish to invest the funds for the future, and there are many options available to you including property, shares, and managed funds. Having a lump sum to kick start your investment can really put you in a great financial position.
If you are close to retirement, you may like to consider making extra contributions to your super fund as the earnings within super are taxed at a lower tax rate. That means that your investments will ultimately earn more within super because you only have to pay 15% tax on your investment instead of your marginal tax rate (up to 45%).
So before you work out what you want to do with your inheritance, maybe take a step back, give yourself some time to grieve and when the time is right get the right advice.
This post is from our resident Financial Adviser Cara Brett. Check out her details in the About Us page.
Posted in: Cara Brett, Financial Planning, and Investments
About the author: Cara Brett
Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.