How should I invest my inheritance?
Receiving an inheritance
When we’re young, we believe our parents and loved ones will live forever. As we all come to learn, this isn’t the case, and we lose a loved one. This can be an emotional time for you and your family, even after some time has passed. You might be uncertain whether the decisions you make in receiving your inheritance are the best for your future.
If you receive an inheritance, it might be tempting to go on a luxury vacation or buy a new car. However, it’s important to take some time before making a quick decision. Come up with a plan looking at both your long-term saving goals while balancing current needs. Here are some tips on how a financial advisor can help with your planning.
Where do I begin?
There are some questions you should consider. “What should I do with the inheritance?” “Where am I on my life’s path?” “How will this inheritance change my life?” The answers to the above questions will guide you on how best to use your inheritance.
Debt, fun or save?
It’s important to realize everyone isn’t in the same situation. Some people will be better off paying down debt instead of saving or investing. If the interest rate on your debt is higher than you can make by saving or investing the money, then you might want to pay it down. For example, if you have a credit card balance or student loans, it might be a good idea to pay them off before investing the money. An inheritance can also be a good way to help pay off most, if not all, of your mortgage or other household debts. Paying off car loans and lines of credit can help with your current and future financial situation. Or if your current vehicle has seen better days, it might be time for an upgrade. Look for a vehicle to best align with your current lifestyle needs.
You might also look to start, buy or join a business with a family member, friend or colleague. This could be a great opportunity to become your own boss and pursue your passion.
Perhaps your loved one mentioned in their Will for you to have fun with the money. This could be a great opportunity to go on a dream vacation. Pick a location you’ve always wanted to visit or a spot that had a special meaning to you and your loved one.
It’s also important not to start flashing your money everywhere. You might find a long list of “old friends” or “lost relatives” who suddenly start coming around asking for money. Maybe it’s time to start working with a financial professional.
Managing your money
If you’ve never had a large sum of money before you might need some help on how to manage it. A financial advisor can be a valuable member of your network as you learn to live with your inheritance. They can help you navigate your path as you look for the best way to put your inheritance to work.
Check with your plan administrator to see if your group plan offers an Employee Assistance Program (EAP). This can help you find a financial advisor to help with your planning.
Here are some things to talk about when you meet with your advisor.
Cash Inheritance: You’ve received cash from a loved one and are looking long term towards your retirement. What are the best savings options for you? A couple of retirement savings tools are RRSP’s and TFSA’s. For more information on TFSA’s and RRSP’s check out this article.
Stocks and Bonds Inheritance: You might have received stocks or bonds as part of your inheritance. You will need to see if they match your savings goals. You will also need to find out how much tax and fees you will need to pay if you decide to sell them. Selling might be a good decision if there are a lot of stocks or bonds in one company; however, if it’s a good mix of stocks and bonds it might be best for your savings goals to keep them.
On the journey to retirement: If you’re just starting out or are in the middle of your working career, you may want to invest more in funds. This is because you have time to weather the ups and downs of the stock market with less worry. Don’t have too much invested in one industry. This is because if the industry becomes troubled you will lose more of your money than if you had funds over multiple industries.
Almost at the finish line: If you’re closer to retirement, you might want to keep the money in a bank account instead of trying to earn higher growth through investments. This will depend on how close you are to your savings goal. If you are very far away, it might be best to invest the money in funds to try and make up ground. This is because you can get a better return from funds than interest on savings accounts. If you are happy with your savings, then you might want to look to some fun items or activities to buy.
It can be hard deciding how best to use an inheritance. If you’re not sure what to do, hang onto it. Take some time to decide on the best option for your financial plan; if you don’t have one, create one. If you still have questions, talk to a financial advisor.
Manulife is not responsible for the availability or content of external websites. This article is published by The Manufacturers Life Insurance Company (Manulife) to provide information about current issues and assist in the decision-making process. The article, however, is not intended to provide medical, financial, counselling, or legal advice and any queries you may have should be directed to an appropriate professional advisor. Group Benefit products and services are offered by The Manufacturers Life Insurance Company (Manulife). Manulife, Manulife and Stylized M Design, and Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license. ©2019 The Manufacturers Life Insurance Company. All rights reserved. PO Box 2580 STN B Montreal QC H3B 5C6