Quora Answer: What Should I Do with a $300,000 Inheritance?

The following is my answer to a Quora question: “I will inherit $250,000 to $300,000 when I reach 25 years of age, in 4 years, and my goal, by then, is to be able to live on my own.  What should I consider spending it on, not spending it on, or investing in, once I inherit the money?”

It is difficult to answer for someone based only on this.  Depending on your life goals, the answer may vary, so I will answer in general.  I would advise you to continue your studies if feasible, and find a good career.  This is not enough to retire on, but enough to make the money work for you and grow.

Pay off all debts that have a high interest rate and will affect your credit rating.  If that is not possible, refinance them at a lower rate.  Do not drain your funds paying off every single debt.  As a rule of thumb, do not pay off more than 20% of your principal sum here so that you can maintain the bulk of the money to earn, and use the earnings to pay off these debts.

As for the funds, divide them into two portions, on a 60:40 ratio.  The 60%, keep it liquid, and put it in securities that you can draw on for out of budget expenses.  You can put them in any manner of investments that you feel comfortable with.  Never be tempted to put your money in higher risk securities for higher yield.  The corresponding risk is not worth it, and these securities only benefit those who have real financial muscle, and know what they are doing.  Suitable securities that you can consider include mutual funds, investment-linked plans, and REITs.  They are suitably liquid that you can draw down funds if required.  At the same time, they are not immediately available so that addresses the temptation on spending it on something stupid.  These are intermediate higher risk securities.  Whatever investments you put your money in must have a higher projected return than the near-term inflation rate.

Do not put that money in business.  Every other person has an idea and needs some investment.  Only get involved if you can stomache the loss, if you know the business well, and if you have direct and final control of the funds and expenditure.  Do not put money in the Forex market, or in complicated derivatives.  The leveraging alone will kill you in a wrong bet.

As for the 40%, put it in longer term investments that are illiquid.  They include fixed deposits, corporate bonds, and Treasury bonds.  These investments are low risk, but have a lower return.  They balance out your portfolio and ensure that in the event that the stock market crashes, you will not be left penniless.