Experienced Investor
Your Money answers Your Questions: Inheritance
Dear Your Money,
My Aunt has died after a long illness, leaving me a six figure inheritance. I am in my fifties, with a small mortgage and, now my children have left home, relatively few financial commitments. At the moment, it is just sitting in my bank account doing nothing and I feel I should be doing something more exciting with it, perhaps investing it in the stock market or putting it into a high interest ISA. My bank is putting pressure on me to direct it into one of their products. What should I do?
Many thanks,
Eleanor, from Hertford
The answer to your last question is, quite possibly, ‘nothing’.
That may sound a bit simplistic – but it comes on good authority.
“Doing nothing is the best course of action when you come into money,” says Patrick Connolly CFP, an independent financial adviser at Chase de Vere. “There’s no obligation whatsoever to use those funds immediately – so don’t.”
Now, what you can do with your inheritance is a separate question.
To answer it, start by taking stock of your current circumstances – and asking yourself what you’d like to achieve now your finances are looking rosier than before.
“A common mistake is to view an inheritance in isolation, distinct from your funds overall,” says Connelly. “The second it’s deposited into your bank account, it’s integrated with your finances – and should be treated as such.”
Are you paying off a mortgage, credit card, loan or otherwise every month? If so, you should focus on alleviating these liabilities – or ending them outright – before putting your money to other uses. “Whilst repaying debts might not have the allure of a new car, you should consider it before you start spending or investing your inheritance,” he adds.
Your initial focus should be ‘priority’ debts – responsibilities where non-payment could mean losing your home, ending up in court, having your heating cut off, etc. Debts with the highest interest rates qualify too. Rank your debts according to significance, then work out how quickly you can clear them – or, indeed, if you can afford to clear them all now.
It’s also sensible to earmark some funds for the purposes of supplementing your savings pot (or, indeed, starting one). A good starting point is a figure equivalent to three months’ typical spending for you. “Although,” Connelly notes, “if your inheritance is sizeable, why not try for a base figure of six months?”
What you choose to do with these savings depends on when you would like to access your funds – and how easily. If you’ll need to access some of this money in the near future, you might choose to place it in a current account, or ISA. If the latter, shop around to see which savings accounts offer the best rates of interest. If your savings total over £85,000, Patrick believes it best practice “to split this across institutions”; £85,000 is the maximum figure protected by the Financial Services Compensation Scheme. What you do with the money that remains depends on your wider financial objectives – and the level of risk you find acceptable. You may want to speak with an independent financial adviser about what options are available to you.
You could invest in yourself, by funding a training course to enhance your career prospects – that will depend how much you like your job. Another alternative might be to invest in equities. Any investment you make should be focused on creating consistent, stable returns, rather than short-term profits achieved by chancy gambling. It’s also wise not to focus too heavily on any single option, Connelly says: “I would favour a combination, mixing cash assets with fixed interest savings, some investments, and maybe property.” Don’t rest on your laurels, either – review your savings and investments regularly, and see whether they could be optimised to serve your needs better.
If you have a question that you would like answered by an expert, please contact Kit Klarenberg.
