How to Invest a Substantial Inheritance

Maximizing Financial Returns: What to Avoid When Handling a Large Inheritance

Nov 1 | 3 minutes read
How to Invest a Substantial Inheritance

Learn what not to do when handling a substantial inheritance to ensure you maximize your financial returns and make the most of your newfound wealth.



Receiving a substantial inheritance can be both a blessing and a burden: a blessing because the funds can potentially improve your financial situation, and a burden because it requires responsible management to avoid wasting the inheritance. Here's a comprehensive guide for individuals who have received or are expecting a significant inheritance.


  1. Don't Rely on an Inheritance That Hasn't Been Received

If you're anticipating a large inheritance, but haven't received it yet, don't bank on it. Circumstances can and do change. Your benefactor may incur considerable expenses for medical or nursing care, decide to donate everything to charity, or fall victim to a scam. According to a 2011 report by the Bureau of Labor Statistics, the expected inheritance boom from the WWII generation to baby boomers did not materialize. Consequently, it's crucial for younger generations to prioritize their financial well-being, avoid excessive debt, and not rely on a potential windfall.

  1. Proceed with Caution

If you do receive a significant inheritance, avoid making impulsive decisions. Dealing with grief is challenging enough without adding financial stress. Consider the type of inheritance you received and take the appropriate steps to manage it responsibly. If you inherit cash, keep it secure by depositing it in a federally insured bank or credit union account. If you inherit non-cash assets, work with the estate executor to legally transfer them into your name.

  1. Seek Professional Assistance If Necessary

Depending on the inheritance size and your comfort level with financial decision-making, consider seeking professional advice. A fee-only financial advisor can help you create both short-term and long-term financial plans while minimizing conflicts of interest.

  1. Eliminate Debts

Using the inherited money to pay off high-interest debts, such as credit card balances or student loans, is a wise move. Deciding whether to pay off lower-interest debt like a mortgage is a more personal decision based on your risk tolerance and financial goals.

  1. Invest the Remaining Funds

Once you've settled your debts, carefully consider how to invest the remaining money. Consult with a financial advisor or conduct your own research to make informed investment decisions. Consider incorporating the inheritance into your overall portfolio and ensure proper diversification across various investments with different risk levels.

  1. Understand Tax Implications

Federal estate taxes typically apply only to very large inheritances. However, some inherited assets may have tax consequences. For example, if you inherit stocks, you'll need to know their value on the day the original owner passed away to calculate your cost basis if you decide to sell them later. Inherited IRAs also have specific tax requirements depending on whether they are traditional or Roth IRAs and whether the deceased was your spouse or another individual.

  1. Spend Wisely, But Don't Go Overboard

It's acceptable to use some of your inheritance for personal expenses or to treat yourself and your loved ones. However, remember that once the money is gone, it's gone for good. Invest wisely to ensure your inheritance lasts and possibly even passes down to future generations.



Handling a large inheritance responsibly can significantly improve your financial situation. Take your time when making decisions and seek professional advice if needed to maximize your financial returns and make the most of your inheritance.

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