The key to investing your inheritance

Shirley Liu 18 January 2016

investing your inheritanceHow should you invest your inheritance?

18 January 2016: Receiving an inheritance can be a great financial boom and could mean the difference between a relaxed retirement or a stretched one. Upon receiving the money, there would be a great temptation to spend it right away on a luxurious holiday -- but is that going to be worth it in the end?

Clear your debts

Before doing anything else with your inheritance, look at how that money fits into your overall finances. Do you have any high-interest debt, such as credit card debt or a car loan? These debts can attract very high interest rates meaning you will pay more than you have to. Credit card interest can be as high as 21%. It’s worth thinking about using your inheritance to wipe some of this debt away.

On the other hand, students loans and the likes of can sometimes be tax deductible so your inheritance may be better spent on other investments.

Have an emergency savings fund

If you don’t have any emergency savings to bail you out of a tricky situation, you may want to open a savings account and earn interest on your inheritance.

Tucking a small portion of your inheritance into a savings account could cover you for three to six month’s expenses should you need it. By keeping a savings account, you won’t have to tap into other investments.

If you are in your 20s or 30s, having an emergency savings account set up with you inheritance will be very useful. If you need to take time off work, travel or have an emergency, you’ll be able to easily access your money.

The age question

Most people that receive an inheritance are usually in the late 50s or early 60s. For anyone in their 50s, putting the entire inheritance into superannuation funds could be best option. If you are 60 and above, putting the inheritance into super would be more beneficial since your super benefit payments would be tax-free.

If you still have outstanding debt like mortgages or car loans, pay off that debt then put the remaining amount into super.

Planning for long-term investments

Investing in stocks could be one of the most beneficial things to do with your inheritance if you’re a young person. Long-term stock investments can pay significant dividends to you if the companies perform well. Putting some of your inheritance into a share portfolio could earn you a good amount of money for the future.

There are several good long term stocks that will produce good dividends and help you have money for the future.

So before blowing all your inheritance in one go, take some time to plan where it would best be spent. Whether you spend it on an emergency savings account, paying off debt or purchasing long-term stocks, plan and assess where your inheritance is needed most.

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