Best Ways to Invest Your Inheritance Money

A loved one’s death will likely be the hardest thing you’ll ever have to endure. And on top of dealing with the grief, making funeral arrangements and taking care of other responsibilities, you’ll also have to make a plan for any inheritance money your loved one left you.

Instead of spending your inheritance on a big purchase or a splurge, consider investing it. Whether your inheritance is $5,000 or $500,000, putting the money in a safe account where it can grow interest over time is a smart move. Here are the best ways to invest your inhertiance money without too much risk.

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1. Certificates of Deposit (CDs)

At face value, a certificate of deposit (CD) might seem like an ultra-conservative and safe investing vehicle for your inheritance. And it is, since the funds in a CD are usually protected by the Federal Deposit Insurance Corporation (FDIC).

Also, CDs today typically offer interest rates on your money when you store it in an account for a specified period of time. Money can be invested in a CD for as short as a few months or up to several years — or even longer. While placing the money in a CD will typically not earn a lot of interest, it will secure your money in a safe, low-risk place and buy you additional time to consider long-term investing options.

investing money market savings accounts

2. Money Market Savings Accounts

Another conservative approach is to place the inheritance money in an interest-bearing savings account, called a money market savings account. With this type of account, you will typically earn a higher interest rate than a traditional savings account or short-term CD, and you will make a higher initial deposit.

Also, unlike a CD or savings account, you can write checks on the balance. So, this money could be used for a financial emergency or to fund home repairs.

Similar to a CD and savings accounts, this type of account is usually insured by the FDIC, meaning your money will stay safe and experience very low risk.

investing mutual funds

3. Mutual Funds

A financial advisor or stockbroker can help you determine which mutual funds you should invest your money in. With mutual funds, your money is invested in stocks, bonds or other assets through a company that pools money from other investors as well.

A mutual fund can be a good option for your inheritance if you want to diversify your portfolio and experience less risk. Additionally, you will typically earn more income on mutual funds than CDs and savings accounts.

investing 529 college savings plan

4. 529 College Savings Plan

Do you have children or grandchildren? If so, you might consider using your inheritance money to fund a college savings plan for them. This is a loving way to honor your family member and invest in future family members.

A financial planner can help you find the best investment plan based on the estimated tuition cost, the child’s age and other factors. Your risk will vary depending on the 529 plan you pick.

investing in real estate

5. Real Estate

Investing your inheritance money in real estate is another viable option. If you purchase a house or rental property in the right area, you could experience a profit. Working closely with a real estate agent who intimately knows the area and your financial goals is essential, however. As history has proven, investing in real estate can be pretty risky — especially if you’re not prepared.

best ways to invest inheritance

Questions to Answer Before Investing Your Inheritance

Investing your inheritance money is not only a matter of where to put the money and for how long — it’s also important to consider your personal financial situation, future goals and needs before making a decision.

The first thing you should do before investing your inheritance is evaluate your own financial picture. Ask yourself these important financial questions:

  • Are my debts paid off?
  • Should I save the money for an emergency?
  • Do I need to start saving for my kids’ college education?
  • Do I have enough money saved for retirement?

Next, gather the right support team. Having professional guidance is essential to investing your inheritance wisely. Turn to financial advisors or financial planners, probate attorneys and perhaps even a real estate planning attorney. Stockbrokers can also help you if you plan to invest the money in the stock market.

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