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Best Ways to Invest an Inheritance

written by: Jayant R Row•edited by: Jason C. Chavis•updated: 7/10/2010

Assess the sum you have received as an inheritance. If it is substantial, find the best ways to invest an inheritance. If not, see if it can buy you a few things that you have yearned for. If it is the investment route you are thinking of, do so for the long term and avoid too many risks.

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    Investing Your Inheritance

    investment One of the first things to do when you receive an inheritance is to assess your current financial situation. Make a list of all your debts and commitments. Determine the best ways to invest an inheritance. Next, find out from the executor of the estate, the amount of money that is coming to you and the form in which it will accrue to you. There may be tax implications in funds if they come from a retirement account and may govern how you are able to withdraw the funds. Some inheritances may come in the form of stocks or bonds that are already invested. Such stocks may attract a capital gains tax if you liquidate them and you need to be aware of your likely costs of selling the stock. If you inherit item like cars, houses, jewelry, etc., consider selling them and realizing their value if you have no use for them. You can consider renting out the house as this could ensure a constant source of income. However, assess taxes, maintenance costs and other charges that the inherited house may attract.

    Now that you have a fair idea of the situation, see whether it is possible to retire all your expensive debt with part of your inheritance. If the inheritance is substantial you may even decide to spend part of it on a few things that you and the family were always hoping to buy. Once you have got that out of your system, you now have a fair idea of the sums that you have which would require more careful handling, and deciding on the best ways to invest an inheritance.

    Image Source: Wikipedia: Investing

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    Now To the Matter of Investment

    It may not be a bad idea to create an emergency fund which can meet your regular expenses for about six months from this inheritance. Put this in a separate account or in a short term deposit account.

    Do some research on the various method of investment. This must include savings accounts, certificates of deposit and money market funds. Now make out a strategy for a long term investment based on your age, projected expenses and current income.

    Buying property with the sole intention of renting it out is another one of the investment opportunities that you can look at. Property has also the added advantage of appreciation that can increase the value of your inheritance substantially.

    If you are looking at safer methods of investing consider annuities or life insurance cover. Annuities are pension plans that can take care of old age worries.

    Ideally you should consider all these alternatives for your investment, and if the sum inherited is substantial, it would even be a good idea to apportion it to all these various forms of investment. Go for the less risky investments like certificates of deposit, life insurance and annuities if you are nearing retirement or not very far from it. Invest in the stock market if you fancy higher returns but limit this to only a part of your inheritance. Taking the advice of financial consultants is a must before venturing into the stock market, especially if you have never made this sort of investment before. Buy property that is located in areas that have potential for development as this will help appreciation.

    While making these investments and ensuring income for you, it would be advisable to keep the personal tax angle in mind at all times. The inheritance may change your tax bracket and have you paying a much higher tax than you are mentally attuned to.