Where should I begin investing my inheritance?

Investing
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December 2017

An inheritance is (usually) an unexpected blessing. There are different good answers to this question depending on who you are, how old you are, and what you have for life goals and ambitions.  I will assume you have decided that with some amount or all of your inheritance you are just trying to find out how to approach stock market investing.

First of all, since you are new to this and asking a great question – I will give you my number one answer: keep it simple.  After 30 years in this business I have found no reason whatsoever for anyone to invest in anything that is complex or tricky.  A stock represents ownership in a company. A bond represents the debt of a company.  Both are simple concepts.  So, owning a stock means you own a part of a company and you expect that the value of that company will rise thereby making your share of ownership more valuable through time.  Owning a bond means you have taken on a portion of the debt of a company and for that you expect to be paid a fair amount of interest on that loan. For my stock investment clients I buy stocks of companies that I understand, that pay good dividends, which have meaningful history of growth and have good management. It helps if the company has a business and provides a service that is hard to duplicate. Depending on the amount of money you have to invest a good rule of thumb is to invest no more than 5% of your total amount into any one single company. That way you have about 20 different holdings in one investment plan for diversification and risk management.  You should also own foreign stocks and small company stocks and some amount of bonds.  Again, depending on the amount of money you have it can make sense to own a stock or bond fund which will be a single purchase but represents ownership or debt of many companies within that one purchase. Some primary types are Exchange Traded Funds (ETFs), Mutual Funds and Unit Trusts.  My experience is that new investors find ETF's and Mutual Funds easier to understand than Unit Trusts so therefore I tend to recommend those.

Find an advisor that will offer financial planning and investment allocation advice.  If this inheritance is meaningful it will pay huge dividends to do some planning around the tax consequences of your investments.  A good advisor will help you stay objective and can give feedback on whether you are staying well diversified.  It is a full time job keeping up with investments so a good advisor is well worth seeking out.  Only by taking the time to interview, interview, interview, will you find an advisor that you can talk to and who you feel cares about your success as an investor.  That advisor is the one you want to hire and it will be well worth the cost.  People lose far more money in the stock market trying to do it by themself, than they would pay to an advisor during the learning years of investing.  Think of it as college tuition.

Bottom line: start simply and go slowly in your investments.  Resist the urge to put everything in the bank.  You must invest if your money is going to work as hard as you do and earn enough to keep you ahead of taxes and inflation over the long run.

December 2017
December 2017
December 2017
December 2017