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Ask Money

Inheritance

Chris Farrell Feb 27, 2009
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Question: My boyfriend’s father recently lost his 8-year battle with cancer. He received approximately $300k from his father’s life insurance policy; a benefit that he feels was meant for him later in life, not at the age of 27. Though under unfortunate circumstances, the reality is that he now has this chunk of money.

What to do?

He has no intention to buy property at this time because, he just started going to school for paramedic firefighting and will not be looking for a job for two years (and may have to relocate for such job).

He is considering dividing the money in various investment/savings options, including CDs, a money market account, and a Roth IRA.

But, what about investing in stocks or mutual funds? Given the current state of financial affairs and his age, what advice could you give on investing a portion of his money now, for the long term? Rachel, Lauderdale-by-the-Sea, FL

Answer: I’m so sorry for your friend’s loss. It’s hard losing a parent. I have three main thoughts on what to do.

First, take the inheritance and put it into government backed products. He should preserve the value of the money while he figures out what to do with it. That means investing in FDIC-insured products such as certificates of deposit. Since the Federal Deposit Insurance Corporation backs up to $250,000 per account at a bank, I would divvy up money so that it’s all insured. The FDIC’s website at www.fdic.gov has a good pamphlet that clearly explains its coverage. (The same holds for federally insured credit unions.) He could also invest some or all of the money in U.S. Treasury bills. This way he won’t lose any money to the vagaries of the bear market and recession that looks increasingly like a mini-depression.

Second, he should take his time deciding what to do with his inheritance. It might take a year or two or three to figure out the best course of action. That’s fine. He should use the time to learn what investing and savings strategy will work for him over the long-haul, what risks is he is comfortable taking with the money, and what are his financial goals and ambitions. In addition, by taking his time he’ll have launched his career as paramedic firefighter and have a better sense of his job and income prospects.

Third, he needs to trust himself and not the army of money advisors that will knock on his door. Sad to say, there are far too many smooth-talking sharks that prey on people with a financial windfall and not much knowledge of how to manage it. Of course, there terrific finance professionals, and an advantage of going slow and understanding his options is that he’ll be better equipped to judge an honest financial planner versus a fee-hungry scalper.

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