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How to Wisely Invest a Big Inheritance

published 1/28/2016

It’s a fantasy everyone shares — a relative you never really knew passes away after a long and fulfilling life, leaving you a massive inheritance you never saw coming. It’s not unlike the lottery fantasy that recently drove the nationwide Powerball to jackpot of over a billion dollars. Inheritance note

For most people, that fantasy will never come true. But what if it did? Maybe for you, it already has (these things do occasionally happen, after all). Or perhaps you have a more moderate inheritance, albeit still significant, sitting in your lap and you’re wondering how you should proceed.

One lucky gentleman recently wrote into TIME magazine, worried that he didn’t know how to best invest his half-a-million-dollars inheritance. Talk about a good problem to have!

Here was TIME’s advice, which is fairly sound:

  • Figure out how much of the inheritance you need to meet your quality-of-life goals for the rest of your life expectancy (and then some).

  • Decide how you’d like to use this money. Will it fund your retirement? Or maybe you’re looking only to provide for your kids in the form of a trust fund? Do you plan to donate some to charity?

  • Target a specific percentage that you’d like to see as a return. (In this case, the lucky beneficiary targeted a 5% return.) This will help to inform your approach.

  • Estimate your likely income for the foreseeable future. How much do you make? When will you retire?

  • Decide how much you’re going to invest, and then carve some of that out for short-term investments. You can then invest the rest with a longer-term perspective.

  • Depending on your age, investing in the market made prove more prudent than buying an annuity.

That last bit of advice is crucial. After all, it was sound investment and smart estate planning that created your inheritance in the first place. Now it’s your turn to make the same wise decisions.

An inheritance is an opportunity. If and when that door ever opens, be sure you put your best foot through first.

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