How to invest your inheritance

What to do with an inheritance

If you know what you want to do with it, take time to pause and think. If you don’t know what to do with it, take time to pause and think.

Whether you’ve been left cash, investments or property, it’s worth resisting the temptation to make big financial decisions straight away. Inherited money can come with extra pressure. It may have belonged to someone you loved. It may have been written into a will for you as a symbol of love and trust. An amount that may be enough to make a big difference to your future. You want to be sensible. You want to make it count.

It can be especially daunting if you don’t know how to invest an inheritance, and if it’s already invested, if you’re seeing the value move around while you’re still deciding what to do.

So, a useful way to think about what to do with an inheritance is in three stages.

Decide what you want your inheritance to do 

To begin with, try not to focus on how much you’ve got. Our Financial Planner, Harry Bell, recommends starting with what you want the money to make possible. That could mean extra financial security, moving home, retiring earlier or simply having more freedom. 

This is where conversations with our Financial Planners usually begin. Well before getting into the nitty-gritty of inheritance investing advice, it helps to understand what you want the money to achieve. Once you’ve done that, it’s much easier to work out how much risk is appropriate and what sort of investment approach is right.

With the first step complete, organise your inheritance around those goals

As a general principle, you want your wealth to be as productive as possible, but only within risk bands that reflect your place in life, your goals, and your need to access it. Money you expect to need sooner may be better kept in low-risk investments, if invested at all. But money you won’t need for several years can work harder in markets.

How should I invest my inheritance?

When investing a large lump sum, we translate your life goals into return objectives. 

One way to take the weight off your shoulders is with a ready-made diversified portfolio. Multi-asset funds, for example, can give you exposure to a mix of investments built by a team of experts. 

For larger or more complex inheritances, a discretionary investment management service may be more appropriate. This is where an investment manager builds and looks after a portfolio tailored just for you, while working with your financial planner.

Personal pensions should also be part of the conversation, as these are often the focus if one of your goals is to bring retirement forward. The annual contribution allowance is usually £60,000 per tax year, but the amount you can contribute personally is subject to earnings.

Speaking of tax, don’t forget about it…

Whatever your plans, any action you take should be as tax-efficient as possible. 

Inheritance tax is usually dealt with by the estate before money is passed on, but other taxes can come into play once you start reorganising things. If you’re selling investments to buy others, capital gains tax currently only applies to increases in value since the date of death.

Once again, you don’t have to be an expert yourself on this – there are professionals out there to help. Charles Stanley is not a tax adviser, but our Investment Managers and Financial Planners have wide-ranging knowledge across many areas of personal finance and can work alongside other professionals.

So, if you’ve inherited money and are considering investing it, speak to us today. We can help you understand your options and whether one of our investment management services could help you achieve your personal goals.