Ask Stacy: How Should I Invest a Windfall?

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Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.

If you’re not typically a video watcher, give it a try. These videos are short and painless, and you’ll learn something valuable. But if you really can’t stand the thought of video, scroll down for the transcript, as well as some reader resources.

Today’s question is about what to do when some cash falls into your lap, ranging from something as exciting as a lottery win or unexpected inheritance to something as mundane as your annual tax refund.

What should you do with a windfall? Here’s what I think.

For more information on this topic, check out “Sudden Money — 6 Tips to Manage a Windfall” and “How to Find Money You Didn’t Know You Had.”

Transcription of this video

Stacy Johnson: Hello, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson. This segment is brought to you by, serving up the best in personal finance news and advice since 1991.

Here’s today’s question. It is from 63 And Curious. 63 says, “I received $100,000 from my mom and dad’s estate. I have a monthly pension that covers all my expenses. I have $7,000 in savings and a stock portfolio valued at $120,000. What would you do with that $100,000?”

Well, I was a recipient from my parents’ estate. So were other relatives of mine. I can tell you what some of them did that’s the worst thing you could do with an inheritance. And that is to use it to temporarily boost your standard of living. In other words, one of my relatives took that money and spent, like, $3,000 every month. It wasn’t a whole bunch. So basically, she went through her inheritance, temporarily felt wealthier, and at the end of the day had nothing. To me, that’s the worst thing you could do with an inheritance.

Let’s talk about the best things you can do. Three things. Number one: If you get an inheritance — any kind of found money — the first thing you do is pay off debt. If you’re paying 18 percent interest on a credit card, then paying off that 18 percent interest credit card is like earning 18 percent risk free. And you’re not going to do that anywhere else. So, the first thing you always do with found money is you pay off debt.

Two: Increase your savings. Now, 63 And Curious said they have $7,000 in savings. They’ve got $120,000 in stocks, but they need a lot more than $7,000 in emergency savings. Even though they’ve got a pension coming in, and even though they’ve got a stock portfolio, I would increase those savings substantially.

The third thing I would look at is re-evaluating your goals and investing accordingly. Now, that sounds like a bunch of mishmash, but here’s what I mean. If you inherit some money, what are your goals? For example, I’m 62 years old. I don’t have a big family. Is my goal to spend all my money? Is my goal to leave it to charity? Is my goal to leave it to my relatives? This is a time when you want to start thinking about what your goals are.

If you’re going to have more money than you’re ever going to spend — and it sounds like 63 And Curious might be in that position — then think about what your goals are. Because if your goal is to spend your money before you die, then you don’t really need to be investing it for the long term. I mean, you do need to have some long-term investments. But do you see what I mean? If your goal is to leave an estate, then you might invest differently than if your goal is to have a bunch of fun, as much you can, as soon as you can.

This is a good time to re-evaluate exactly where you want your estate to be, at least, or where you want to be. And then invest accordingly. More than likely, what 63 And Curious should do is beef up their savings, and then add to that stock portfolio. That’s probably their best bet. But this is an opportunity to take a look at that. Does that make sense? I hope so.

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That’s all I’ve got for today. I hope you guys have a super profitable day, and I will definitely see you right here next time!

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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