Money Talks: I inherited lots of money but how do I increase its value?

If properly managed an inheritance will certainly strengthen your financial stability, says Carol Brick

Wed, 26 May, 2021 - 20:04

I am about to inherit €400K (post-tax). I have never invested before, but I think that I would like to invest it, rather than put it into the bank. Is this a good idea?

Inheriting this amount of money if properly managed and invested will certainly strengthen your financial stability.

As always, I am going to start by recommending that you engage a professional financial advisor.

With interest rates at an all-time low, undoubtedly there are much better alternative investment options available to you than bank deposit accounts, most especially if you are looking at a time frame of around five years. Investment bonds are the most popular and attractive option and available through the main life and pension providers. They come with varying levels of investment risk attached and it is your advisor’s job to measure your personal risk appetite and then match you to an appropriate portfolio.

Typically, investment bonds offer a solid return over time and invest in a diversified range of assets including equities, bonds, alternative assets and property. Multi-asset funds have been the most popular choice with our clients over the past number of years. Investing in a multi-asset fund means that you will be invested in a globally diversified portfolio and your capital will have the opportunity to generate higher returns over the longer term.

One of the most popular medium risk multi-asset funds available from one of Ireland’s market-leading life companies has achieved more than 44% growth in the five-year period up to December 2020, which is certainly not to be sniffed at. This actively managed fund invests in a broad range of assets with approximately 55% in equities, 30% in bonds, 10% in alternative assets and 5% in Property and is spread all over the globe.

The longer your investment term, the more likely it is that the capital will weather the inevitable ups and downs of the equities market. When it comes to investing, not having “all your eggs in one basket” is key to success.

Please also bear in mind that if the thought of “temporary losses” in your investment would keep you awake at night then you should concentrate on the lower-risk options available to you like bonds. The more you are willing to take on any interim market setbacks in the pursuit of long-term growth, the better your returns will be.

In my opinion, even the most cautious investor should mix in some blue-chip equities in the knowledge that the bonds in your portfolio will offset any losses.

And even the most fearless investor should a small number of bonds to cushion a precipitous drop.

Inevitably all investments have some sort of costs involved. This is usually in the form of an annual management charge which is on average 1% per annum but watch out for any other ‘sneaky charges’. There is also a government levy of 1% but the good news is that some of the life companies cover this for you so the only charge should only be the annual management charge. Growth on the bond will also be subject to exit tax of 41% on encashment or each 8th year anniversary of the policy while it is in force.

When it comes to your advisor, do not be afraid to ask questions no matter how trivial you think they might be. Understanding exactly how your capital is invested and having confidence in both them and the investment solution they recommend will help you make better decisions and certainly improve the financial outcome over time.