Windfall Woes

For a moment, let’s imagine you’ve come into an unexpected windfall—specifically, someone has left you $500,000 in their will. What should be done? What are the wise moves to make?

When it comes to an inheritance, the first thing we recommend to do is wait. Oftentimes, such windfalls follow a tragic point in your life, having lost someone near and dear to you, and the last thing you should be doing is making any big decisions while grieving. Parking the money in a low-risk, cash-like position is a good starting place.

Tip: Something like a short-term, non-redeemable GIC is a good way to have the money inaccessible until you’re in a better mental place to make decisions. Such an investment will also ensure you earn a modest return in the meantime.

After you’ve had time to process your feelings, the next best thing is to take account of your financial position. Although it may help to meet with a reliable financial planner for this, it’s often best to simply lay out your assets and debts.

An emergency fund is usually the best place to start. Having 3-6 months set aside in an easily accessible savings account is a tried and true recommendation. This way, you aren’t needing to draw on any of your investments before intended or during a period of market volatility.

From there, paying down high-interest debts (like credit cards or payday loans) is the next priority. Although it may seem worthwhile to invest the funds and grow your wealth, no market return can reliably earn you more than what these types of debt are costing you.

It’s always best to thoroughly vet those that you’re trusting with your money. Anyone promising you too-good-to-be-true returns should be approached with caution. There is no such thing as a “guaranteed return” in the stock market. If the person you’re talking to uses that phrase, run.

Only after addressing your emergency fund and high-interest liabilities should you consider investing or spending any of the remainder towards your goals.

An accredited financial planner (such as a Certified Financial Planner?) can help you define your long-term goals and have your remaining funds invested in a way that gets you closer to those goals. With a well-curated plan, your inheritance can provide you with a comfortable retirement or help you in achieving short-term goals like home ownership or further education.

Tip: Make sure the person you’re working with has a fiduciary and legal duty to act in your best interest. Qube is one such fiduciary. Windfalls can often attract advisors looking to earn a high commission by selling you inappropriate products or strategies.

Lastly, don’t be afraid to use a modest sum of this inheritance (such as 1% to 5%) to treat yourself to an experience or item that has sentimental value. Consider what the gifter would have wanted to provide you with. Something that reminds you of them can feel far more valuable than a slightly larger investment portfolio.

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