What to do with an inheritance

Receiving an inheritance can often come at a time of complex emotions that colour our judgements. For that reason alone, it makes sense not to jump into making any financial decisions hastily or lightly. Time may well help to clarify the options at hand.

During times of high inflation, the temptation to spend at least part of your inheritance will be all the greater. This is entirely rational. After all, significant purchases could well end up being considerably more expensive in, say, a year’s time than they are today.  

By contrast, during the decades of relatively low inflation up to 2021, the disinflationary forces of technological advance and global competition minimised the disadvantages of deferred spending. 

After paying down any debts, building a cash buffer may be at the top of your list of priorities. Higher interest rates make cash a more attractive option but holding too much could prove costly over the longer term.  

When inflation is considerably higher than prevailing interest rates available on cash deposits, each year that passes guarantees a real-terms loss in buying power. 

Investing at least a part of your inheritance in assets that have the potential to grow faster than inflation over the longer run makes as much sense as ever, even though it may not seem like during times when stock and bond markets are falling. 

Volatile markets come as a healthy reminder of the sense of dividing up your investment purchases over a period of time in order to avoid running the risk of buying everything just at the wrong moment. 

So, if you’re planning to invest a large sum (such as an inheritance) and find the prospect of building an investment portfolio somewhat daunting, then taking financial advice may be right for you. Reach out to an independent financial advisor for guidance; don’t just go with your emotions.  

Lastly, this may be a good time for you to look to your estate plan to make sure your loved ones are looked after in the event of your death or disability.