How To Invest An Inheritance

How would you react if you inherited $1 million from your parents or grandparents?

Would you spend it all at once? Or would you prefer to save some of it for a rainy day?

You might be surprised to hear that the average American family has over $100,000 in savings.

How To Invest An Inheritance

That means they have enough money to last them through retirement, or college tuition, and other major expenses.

But if you inherit a large sum of money, you should consider investing it instead.

The sooner you start saving, the better off you’ll be. Why? Because you’ll get more growth than someone who waits until retirement age.

And if you’re 25 now, you can still accumulate assets starting right now.

What To Do With An Inheritance

The first thing you need to decide is whether you want to keep the money to spend or use it as a down payment on a house.

If you choose the latter, make sure you’ve saved enough to pay at least 3% — 5% is even better.

If you don’t have a big expense such as a house and you do decide to put your inheritance into stocks, there are two things you need to know: where to invest it and how much risk to take.

Where To Invest Your Money

There’s no doubt about it: Stocks are great investments when interest rates are low. Right now, though, they’re not cheap.

So if you plan to invest your inheritance in stocks, you may want to wait until after the next recession before doing so.

That said, if you don’t mind taking risks, here are three places you could put your money today:


When interest rates are high, stocks tend to outperform bonds because investors can earn higher returns.

But when rates go up, stocks become less attractive.

So if you’re willing to accept greater volatility, you should consider putting your inheritance into stock funds.

These mutual funds give you access to a wide variety of companies – including small-cap and mid-cap firms – without having to pick individual stocks yourself.

For example, Vanguard’s Total Stock Market Fund (VTSMX) gives you exposure to almost every publicly traded company in the United States.

It also offers lower fees than most stock funds. In fact, its expense ratio is only 0.16%, which is one of the lowest among its peers.

Bond Funds

If you’d rather avoid market swings, you could put your inheritance into bond funds.

Bond funds are similar to stock funds, except they focus exclusively on U.S. Treasuries.

They offer several advantages over traditional Treasury bills, such as longer maturities and lower management costs.

In addition, bond funds often provide tax benefits by allowing you to deduct their expenses from your taxable income.

For instance, Vanguard’s Intermediate-Term Tax-Free Fund (VTIAX), which invests in short-term government securities, lets you deduct 20% of your investment cost each year.

Real Estate

Finally, if you’d like to diversify your portfolio, you could buy real estate with your inheritance.

Real estate tends to perform well during recessions, but it can also help you build wealth faster than other asset classes.

You can find many good deals out there, especially for people who have inherited land.

How To Invest An Inheritance

One option is buying a home that needs some work.

Then, once you finish fixing it up, you can rent it out and collect rents while building equity in the property. 

Another idea is to purchase a rental property outright.

This way, you’ll be able to enjoy the appreciation in value without worrying about paying taxes on any gains.

Of course, investing in real estate isn’t right for everyone. If you’re new to the world of finance, you might want to start with something simpler first.

And even if you think you understand the basics, you may still want to consult a financial advisor.

After all, he or she will be able to tell you whether your particular situation makes sense for real estate or not.

Our Tips 

Below, you will find some valuable tips that you should bear in mind when deciding how to invest your inheritance.

Go Slow

It’s important to remember that investing is a long-term game. You won’t see big returns overnight.

Instead, you’ll need to stick with your strategy for at least five years.

That means you shouldn’t make major changes to your portfolio too soon after inheriting your money.

Also, don’t try to time the markets. Most experts agree that timing the market is impossible.

So instead, just keep things simple: Buy low and sell high.

Consider Your Goals

Before you invest your inheritance, you should ask yourself what you hope to accomplish with your money.

Are you looking to retire early? Or do you plan to use your inheritance to fund college tuition?

Once you know what you want to do with your money, you’ll be better equipped to decide how much risk to take when investing.

Don’t Forget Taxes

When you inherit money, you usually receive it free and clear. But you still owe Uncle Sam his cut.

Depending on where you live, you may get a gift tax bill from the IRS.

In this case, you’ll likely have to pay back taxes on the full amount of your inheritance.

If you’re planning to leave your inheritance to charity, you may qualify for a charitable deduction.

The total value of your gifts must exceed $13,000 ($26,000 for married couples) before you can claim a deduction.

If you’re unsure about how to handle your inheritance, talk to a qualified professional.

He or she will be able to help you determine the best ways to manage your money. 

Honor Their Legacy

Inheritances are meant to honor someone else’s life. As such, they tend to carry special meaning for the person who left them behind.

Before you invest your inheritance, consider what kind of legacy you want to leave behind. 

Will you pass along knowledge? Create a foundation? Make a difference in the lives of others?

Whatever you choose, make sure you’ve thought through your intentions before you make any decisions regarding your inheritance.

Build A Dream Team

As you build your investment team, look for professionals who share your values and goals.

For example, if you want to give away most of your inheritance, you’ll probably want to avoid advisors who focus solely on making money.

You also want to find people who are honest and trustworthy. Ask friends and family members for recommendations.

Then interview each candidate thoroughly. Be sure to ask questions like these: How did you earn your reputation as an investor? What advice would you offer me? Do I feel comfortable working with you?

Finally, don’t forget to include your own personal preferences when building your dream team.

For instance, if you prefer to work with women rather than men, make sure you hire an all female team!


Inheritances aren’t easy to deal with. They often come with strings attached.

A large sum of money always comes with a great deal of responsibility, and you should do your research carefully before deciding how to invest your money. 

That said, investing your inheritance isn’t as difficult as you might think.

By following some basic rules, you can create a solid portfolio that allows you to achieve your financial goals. 

We hope that this article has helped you on your way to deciding how to invest your inheritance money.

Colin Faser
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