What Should I Do With a $240,000 Inheritance Considering My Goals? – Technologist

A lot of personal finance content focuses on theory vs. individual circumstances. It’s a necessity as it’s impossible to explain the “best” way to invest based on tens of millions of people, all with different goals, ages, lifestyles, life expectancies and more.

However, sometimes a specific use case can provide a fresh perspective on the more broad-based advice.

That’s the case when it comes to determining what to do with an inheritance, lump sum or unexpected winnings. I wrote an article on that topic in a general sense, based on the advice of money expert Clark Howard, and I update it regularly.

In this article, we’ll review Clark’s answer to a specific podcast listener.

How Should I Invest My Inheritance?

How should I invest my inheritance considering my near-term financial goals?

That’s what a listener recently asked Clark.

Asked Cathi in Florida: “I will be inheriting $240,000 at the end of this year. Please suggest the type or types of funds I should consider for this gift.

“I own my home and do not need the money for short-term living expenses but would like to access it for home improvement projects. We’re also considering moving out of state in a year or two and may need some of this toward purchasing a new home.”

When considering an individual case, it’s vital to consider your current goals and how much money you’ll need for each. But remember, Clark also considers investing for retirement to be the utmost priority.

So let’s break down the three “buckets” that seem appropriate for Cathi. Here’s what Clark says:

• Home improvement: How much money will she need? This seems like an immediate or nearly-immediate purpose.
• Down payment: This is also a short-term goal. Determine the amount and pair it with her home improvement bills.
• Retirement: Earmark the rest of your inheritance toward your retirement savings. Invest it for the long-term.

“The money you anticipate you’re going to need for [home improvement and your down payment] is best put in a high-yield savings account, right now earning about 5%. And you just let that money sit in what I call a parking space,” Clark says.

“The principal amount of the money that you know is long-term, you can put in an index fund. My favorite would be a total or broad stock market index fund where you have tiny little pieces of publicly-traded stocks.”

Clark’s Advice: Investing for Retirement

Clark also mentioned that if you’re eligible to contribute to a Roth IRA, you set aside some funds in the “investment” bucket to max out your IRA contributions for the next few years. That is, if you’re not maxing out your contributions already.

It may be difficult to slow down and think long-term when $240,000 in somewhat unexpected money hits your account. But slow and steady remains the name of the game when it comes to investing for retirement.

“So you just ride with capitalism [by investing in the broad market]. Up and down years,” Clark says. “But over the long haul, it outperforms virtually anywhere else you could put your money. And the tax treatment with an index fund is ultra, ultra favorable.”

Final Thoughts

The first thing to do when you get an inheritance, lump sum or windfall is to take stock of your current assets and goals.

Separate and prioritize your goals into short-term and long-term buckets, Clark says.

“But really you have to think about money in buckets for different purposes which have different strategies for how you use them, how you save them and how you invest them,” Clark says.

Don’t feel you have to be prudent and responsible for every dollar. In the past, Clark has recommended capping the amount you spend on whatever you want at 10% or less. But not at 0%.

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