First thing is to determine what type of assets you’ve inherited, you need to evaluate your short-term and long-term needs and goals. For example, in the short term, you may want to pay off consumer debt such as high-interest loans or credit cards. Your long-term planning needs and goals may be more complex. You may want to fund your child’s college education, put more money into a retirement account, invest, plan to minimize taxes, donate to a charity or travel.
Inheriting an estate can completely change your investment strategy. You will need to figure out what to do with your new assets. In doing so, you’ll need to ask yourself several questions:
- Is your cash flow OK? Do you have enough money to pay your bills and your taxes? If not, consider investments that can increase your cash flow.
- Have you considered how the assets you’ve inherited may increase or decrease your taxes?
- Do you have enough liquidity? If you need money in a hurry, do you have assets you could quickly sell? If not, you may want to consider having at least some short-term, rather than long-term, investments.
- Are your investments growing enough to keep up with or beat inflation? Will you have enough money to meet your retirement needs and other long-term goals?
- What is your tolerance for risk? All investments carry some risk, including the potential loss of principal, but some carry more than others. How well can you handle market ups and downs? Are you willing to accept a higher degree of risk in exchange for the opportunity to earn a higher rate of return?
- How diversified are your investments? Because asset classes often perform differently from one another in a given market situation, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives, has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be at least partially offset by a gain in another, though diversification can’t guarantee a profit or eliminate the possibility of market loss.
Once you’ve considered these questions, you can formulate a new investment strategy. However, if you’ve just inherited money, remember that there’s no rush. If you want to let your head clear, put your funds in an accessible interest-bearing account such as a savings account, money market account, or a short-term certificate of deposit until you can make a wise decision with the help of advisors.
-Hal B. Holland, Jr., RFC®
Vision Financial Group, Inc.
4505 Pine Tree Circle, Birmingham, 35243
Investment Advisor representative of Investment Advisors, a Registered Investment Advisor and a division of ProEquities, Inc. Securities offered through ProEquities, Inc., a Registered Broker-Dealer, Member FINRA & SIPC. Vision Financial Group, Inc. is independent of ProEquities, Inc. 2018 Broadridge Investor Communication Solutions, Inc. All rights reserved.