Coming into a large lump sum of money can be overwhelming. Whether it comes from receiving an inheritance, getting a divorce, or selling a business, investing a lump sum of money can be stressful when deciding how to invest it and mistakes can be costly. Here at Morgan Rosel, our investment advisors and wealth managers work hard to provide our clients with peace of mind by managing large sums of money with a careful investing strategy.
Here are some things to consider when you’re deciding how to invest an inheritance.
First Off, Take Some Time to Grieve
This is an especially important thing to keep in mind when you receive an inheritance. In several cases, inherited wealth comes along with a sense of guilt and sorrow. After all, it can seem as though the only reason you have the inheritance in the first place is because someone you loved dearly has passed away. This kind of emotional response can have a debilitating effect on what financial decisions you make.
We strongly recommend trying your best to shift your perspective during this difficult time. Your loved one left behind something for you because they cared for you – they would want you to make the best of their gift. Take the time you need to come to terms with your feelings and grief before making any financial decisions.
Develop a Strategy
Once you are ready, it’s a good idea to get started on putting a plan together before any impulsive decisions are made. While it can be tempting to immediately spend your newfound wealth on a new car, a vacation, or another impulse buy, it’s critical to take your time and think carefully about what you want to do with this windfall. We recommend assembling a team of advisors to develop an investment strategy and estate plan to work to preserve and protect your inheritance.
A wealth manager or investment advisor can help you to make the most of your money and increase the probability that it lasts for years to come. By taking your time and utilizing an investment advisor to develop a plan of action, you’ll end up making financial decisions that can potentially benefit you in the long run and will ultimately ensure that you make the most of this opportunity.
Consider Your Tax Implications
With any large influx of money, there will be several tax implications to consider. Especially if you are dealing with an inheritance, you may be subject to new tax liabilities depending on the types of assets your inheritance includes.
Here are just a few to consider.
- State Taxes –Residents of certain states will be subject to inheritance taxes. Colorado does not have an inheritance tax but if the deceased is from one of the states that does have one, a tax liability may occur. Its best to talk to an estate planner or tax professional about your specific situation.
- Federal Estate Taxes – You may have to pay federal estate taxes on your inheritance if the value of the estate exceeds the allowable estate tax exemption. The taxable amounts can change with each presidential election, so we recommend reaching out to a wealth management professional for advice. The tax is applied to the whole estate instead of individual beneficiary amounts. Tax rates can be 40% or greater, so engaging a wealth advisor to shield as much of it as possible from being taxable can save you a considerable sum.
- IRA Inheritances – Withdrawals from standard IRAs will be deemed as taxable income. However, Roth IRA withdrawals are exempt because the tax was paid when the money was invested. To get the most accurate information, we recommend consulting with a tax professional.
The benefit of partnering with Morgan Rosel Wealth Management is that we have already assembled a trusted team of investment advisors, estate attorneys, and tax professionals to advise you throughout the entire process of receiving and investing an inheritance.
How to Investing an Inheritance
When it comes to how to invest inheritance, there is no one-size-fits-all approach. What works for one person may not be the best strategy for another. As a result, it is our recommendation that you diversify your investments. One way to do this is to spread your investments across different asset classes, such as stocks, bonds, and real estate. This can help to buffer your investment portfolio against market fluctuations. Another way to diversify your investments is to invest in both developed and emerging markets. This will give you exposure to a wider range of economic conditions and help you diversify your risk.
Moreover, you can also diversify your investment strategy by using both active and passive investment vehicles. Active investment vehicles, such as mutual funds, give you the opportunity—via a fund manager-to choose specific investments. Passive investment vehicles, such as index funds, track a specific market or index. By using a mix of both active and passive investment vehicles, you can build a well-rounded investment portfolio that is less likely to experience drastic swings in value.
Consult with an Experienced Denver Wealth Manager on How to Invest Inheritance
Typically, when you receive an inheritance, it’s a substantial amount of money. Many people are quick to hire a wealth manager to learn how to invest inheritance, others try to invest the inheritance themselves, but some people just aren’t sure what to do, and that is ok. Taking your time is encouraged. However, if you’re overwhelmed, partnering with an experienced local wealth manager near you can potentially add a lot of value.
- They’ll provide proper guidance. When you hire a wealth manager, you’re also hiring someone who can provide expertise and guidance when it comes to financial matters. This is particularly helpful if you’re not well-versed in finance and don’t know where to start when it comes to investing your inheritance. Your wealth manager will be there to answer any questions you have and help guide you through the process so that you can make the best decisions for your future.
- They’ll help you save time and stress. This is an especially critical point if you’re dealing with an inheritance. Most often, you’ll be dealing with a myriad of family matters after your loved one passes away. There are a lot of challenging emotions that come to the surface when dealing with a death in the family, and it can be a lot to handle. The last thing most people want to do is pore over financial documents during a time like this.
Regardless of how you’ve come to acquire a substantial lump sum of money, it goes without saying that most people juggle several commitments between work and family. Dealing with the big task of properly deciding what to do with your inheritance (or any kind of large sum of money, for that matter!) can make day-to-day life all the more overwhelming. Having someone else handle it for you can take a lot of the pressure off and allow you to focus on enjoying life knowing that your money is in good hands.
Morgan Rosel Wealth Managers Are Here to Help You
When our clients come to us for wealth management advice on how to invest inheritance, our investment advisors go out of their way to do all that they can to protect their newfound assets as well as grow and maintain their wealth. If you’re wondering what to do with your inheritance, rest assured that Morgan Rosel has a team of financial professionals that would be happy to help. Reach out to us on our contact page or give us a call at 303.647.3801.
This commentary reflects the personal opinions, viewpoints and analyses of the MorganRosel Wealth Management, LLC (“MRWM”) employees and guests providing such comments, and should not be regarded as a description of advisory services provided by MRWM or performance returns of any MRWM Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. MRWM manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. MRWM may recommend the services of a third-party attorney, accountant, tax professional, insurance agent, or other specialist to clients. MRWM is not compensated for these referrals.