The IFSA Guide on How to Invest Your Inheritance

Things to consider before you invest your inheritance. Plus top tips to ensure you are making the smartest investment decisions.

When you receive an inheritance, you naturally want to be responsible with how you choose to invest this lump sum. There are many routes you can take, so a good rule of thumb is to start by determining your top financial objective. Once your goal is clear, you will be better positioned to decide on a course of action.

Investing in interest-bearing assets should offer higher levels of security, but potentially lower real returns. On the other hand, investing in equities tends to provide higher returns over the long term.

In this blog, we look at things to consider before investing, plus top tips to ensure you make the smartest investment decisions.

What is an inheritance?

Simply put, an inheritance refers to the assets a person leaves to others after they die. Most inheritances consist of cash but may contain other assets as well. A decedent's assets are divided according to their will. If there is no will, the court will appoint an administrator to divide assets according to government laws. Note that a person who receives an inheritance may be subject to inheritance taxes.

What should I do with an inheritance?

Receiving an inheritance is an excellent opportunity to change your life. In the below, we unpack several factors that should be considered before parting with your newly acquired wealth, together with effective options for allocating and preserving it responsibly.

Typical behaviour on handling an inheritance

Spend, spend, spend

Don’t give in to the temptation of going on a spending spree with the money you have inherited. Stay away from all things shiny and focus only on actual must-haves that add real value to your life from a holistic perspective.

Let’s start a company!

So you’ve always wanted to open a restaurant, but never worked in hospitality? No business is easy. Upon inheriting money, many people take to the idea of becoming an entrepreneurial success. But don’t act rashly. If you do have business sense, starting your own business might very well make sense. If you don’t – it will be worth your while to reach out for expert advice before taking on any long-term commitments.

The next best thing

Crypto. South African EVs (think Eskom). DVDs (or worse – BlueRay). While highly risky investments can deliver exceptionally high returns, it is far more likely to achieve the opposite. Don't be fooled into thinking that one good thing automatically leads to another. Go into each new venture with your eyes wide open and don’t be afraid to ask the hard questions. If you're seeing things like "Invest in XYZ Inc. and get 10% return per month," it's probably a scam.

Family and friends

You can’t lose what you never owned – right? But now that you do, you have every right to think twice about matters concerning what’s yours. And yes, it includes advice from your nearest and dearest. Just because they are family and friends doesn't mean they are financial experts or great business people. It just means they are good people.

The better way to handle your inheritance

Park and decide

Take some time to work through the emotions before deciding what to do. An inheritance typically hails from the personal loss of someone near to you. With that in mind, don’t give in to the temptation of going on a spending spree with the money you have inherited. Stay away from all things shiny and focus only on actual must-haves that add real value to your life from a holistic perspective.

Fact check

Credentials make up a vital aspect of a financial manager's track record – but the only true indication of aptitude is fund performance in good times and bad. Whenever seeking to pursue an investment opportunity, be sure to check if the investment has a proven track record.

Expert advice

There’s no shame in calling on a pro. Spend some money up front on getting valuable advice to make a more informed decision.

What to do first: things to consider before you invest your inheritance

Before making a final decision on where you want to invest your inheritance, consider the following:

You can put your inheritance on ice

Fortunately, you don’t have to make any big decisions straight away. There are ways you can put the process on ice, without incurring unnecessary losses. In the short term, you can deposit the money in your bank account. Your money might not earn much in terms of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it.

Pay off debt

One worthy use for inherited money is paying off your debts. Particularly high-interest debt such as credit cards, personal or student loans. Lower-interest debt, such as a home loan, is more of a judgment call. If you'd rather invest the money for a higher return than your home loan is costing you, that could also be an option worth exploring.

Set up an emergency fund

If you have little or no emergency fund, which should cover about six months of expenses, it makes sense to use your inheritance for this purpose first. The benefits of an emergency fund include less financial stress and the added reassurance that you have some cover in the event of unforeseen expenses.

Ready to start investing? Here are 5 points to guide you through the process

1. Understand your time horizon and risk profile

The longer your investment time horizon, the more risk you take on. For example, if you have 20 years to invest, you could choose high-risk markets. These should ensure very good long-term returns (without focusing on the short-term ups and downs). However, if you only have two or three years to invest, you might want to consider a more cautious investment strategy, because you won’t have the time to make up for short-term market losses.

2. Cash is unlikely to outperform inflation over the long run

Although cash can still be seen as a safe haven in times of uncertainty, you might want to reconsider keeping your inheritance in a general savings account for the long run. In terms of actual spending power, money left in a savings account will lose value over time. This is due to inflation. For example, if you are earning interest on your savings at a rate of 0.5% and inflation is 2%, you lose 1.5% of your spending power after a year. Some savings accounts are high enough to be close to the inflation rate, but most are not good enough to beat inflation. High-yielding savings accounts or money market accounts still tend to have the highest possible return for a risk-free account while still being liquid.

3. If you can afford it, stay with it

Most people want to invest when markets are doing well and tend to disinvest when the markets fall. Try and strive to keep investing at regular intervals over the long term. It is time in the market that matters – not timing the market.

4. Balance your portfolio

Don’t invest only in property or only in cash. Seek to maintain a sensible balance between different types of investments – including alternative asset classes such as private equity. Diversify so that if one market does not perform well, you will still have other investments doing their best for you, thus managing your risk in the process.

Here are some options to consider:

Good Growth Stock Mutual Funds

When it comes to mutual funds, there is no one-fund-fits-all type of solution. Each fund has different investment objectives and risk profiles, which is why one fund may appeal to a specific private investor and not another. Check out ET Money’s article on the best funds to invest in during 2022.

Real Estate Bought with Cash

Perhaps you are considering investing some of your inheritance into a rental property to serve as an additional source of reliable income. While this may be a worthy allocation of the inheritance you have received, it is always a good idea to work with an experienced financial advisor to determine which fit is right for you.

Private Equity

Depending on your risk profile, private equity could be the perfect option to invest your inheritance. It might be worth your attending one of IFSA’s Prosperity Roadshows where thought leaders discuss how to go about finding pockets of excellence in today’s challenging economic climate.

5. Don’t go at it alone

Consult a financial manager you can trust. It’s their job to investigate opportunities and make sound investments. Remember that each person is unique – a good investment for somebody else is not necessarily a good investment choice for you.

An accredited financial advisor like IFSA Private Equity can assist you in compiling a holistic financial plan that meets your requirements and considers your current circumstances. They can also advise you on tax implications, which can vary widely.


Book a free consultation with IFSA for more advice on where to invest your inheritance

Your inheritance can be a big blessing towards a more prosperous financial future, but only if it is managed properly. An accredited financial advisor can assist you in compiling a holistic financial plan that meets your requirements and considers your current circumstances. They can also advise you on tax implications, which can vary widely.

At IFSA, we carefully curate low-risk and low-volatility private equity investment opportunities for our clients and personally sit on the boards of directors of the firms we invest in. We do all the research and heavy lifting so that you can enjoy total peace of mind.

Book a free consultation with IFSA for more advice on where to invest your inheritance.

IFSA (Pty) Ltd Registration No. 2000/005153/07 An Authorised Financial Services Provider Licence No. 43337

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