Sudden Wealth and Investing Sensibly in Inheritance

Kimberly Watson, Editor in Chief
May 02, 2012 /

You have just learned that you have inherited a significant amount of money and after the initial shock, or excitement have subsided, a decision must be made as to how you are investing in inheritance.

An advantage for you could be in consulting an established, reputable investment advisor, to guide you through the various pitfalls associated with different opportunities. He or she would be able to warn you for example, carefully to read and become familiar with any prospectus for investment in inheritance related to funds. It would be stressed, that there are no guarantees provided when investing in the market. In addition, depending on your age and life expectancy, a portfolio with a withdrawal rate of five percent, could be exhausted unless it was carefully monitored.

Being in a position of  investing in inheritance could be challenging for many people and while there are excellent investment options available, you must make a selection that is moist suitable for your specific needs.  It could be beneficial to structure your portfolio with the variance of stock mutual and bond funds. Preference could be given to a moderate allocation mutual fund, which has most assets in bonds and money markets, instead of stocks.

Long-term bonds will suffer more severely when the Federal Reserve starts raising interest rates. Should you be in the position where you need a withdrawal of 5% each year, you could consider the addition of stock funds to your portfolio. Over extended time periods, inflation is a primary adverse factor. It removes purchasing power and relying only on bond funds, means you are unable to keep pace with inflation.

Although bonds are often considered a “safe” alternative, it must be realized that in a rising interest scenario, their price may be as variable as stock funds. When investing in inheritance, determine your tolerance for volatility factor. If you would prefer a less variable situation, then consideration could be given to a short-term Treasury bond fund. This also means the bonds would mature earlier, for example, one to three months.

Consider your investing in inheritance with care as despite shorter maturity bonds offering less risk related to price; in the current interest rate environment, this type of bond paying 5% could involve high risk. This is supported by the fact, that during the past 12 months, an average return of 2.22% was provided by short-term bond funds.


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