Your Personal Guide to Deal With Inherited Investments

How would you react if one day a loved one of yours left their investments to your name? For a regular investor, that’d be like winning the lottery, but for someone alien to investing, it would pretty much be a stumping situation, right? Your first instinct would probably be to sell those investments and bag the money. 

Mufid Majnun/Unsplash | If a close one leaves you an inheritance of investments, your first impulse might be to sell them off and bag the money

Been there, done that? Well, you’re not alone! According to Hargreaves Lansdown’s research, many middle-aged people make the same choice. But you should know that, unfortunately, that step only does more harm. By encashing the investments, you lose the chance to make more money and miss out on valuable tax breaks. 

So what is the right thing to do? Should you keep inherited investments or sell them? Here’s a list of expert suggested do’s and don’ts that will make your decisions easier.

Do’s

Examine the portfolio thoroughly

Rob Morgan, a chief analyst at Charles Stanley Direct, said that if you decide on keeping the investments, you should first check whether or not any changes are needed. Since each portfolio is constructed with specific circumstances in mind, the portfolio you inherited will not necessarily match your goals.

You can make changes to it as per your situation. For instance, if the portfolio is more income-centric and that’s not your need at the moment, you can make it a growth-centric one by investing in bonds rather than equities. 

Play smart

If the person who has passed on the investments to you was very close to you, you might get attached to the bonds, securities, or physical certificates you’ve inherited, which is not really ideal. If you don’t dematerialize your shares, you won’t be able to sell them at your wish. Despite incurring losses, you’ll hold on to them, which will hurt your portfolio down the line. So be smart and dematerialize them if needed.

Guillermo Velarde/Unsplash | When thinking of selling those investments, play smart and look for opportunities that give you the maximum returns

Always consider tax

After analyzing the portfolio, check how the investments are being managed. If they’re outside an ISA (Individual Savings Account) or pension, they would for sure be subject to income or capital gains tax.

In such a case, you should protect them with a tax wrapper so that you don’t have to pay a lot of tax in the future. You could use “Bed & Isa” or “Bed & Sipp” to sell and reclaim these investments. You can even choose other investments or simply hold the cash within your ISA.

Don’ts

Acting without thinking

When you’re grieving about losing someone, investments don’t come to mind. You might feel like selling the shares and getting over with that part soon, but that way, you might lose out on a great opportunity. Give it some time, and once you feel better, take a look at the portfolio and decide for yourself. 

Tyler Milligan/Unsplash | Avoid hastening selling off the investments to get over the grief of losing the one who passed them over. Take your time to move on, then if selling really makes sense, only then go ahead

Ignoring your circumstances

Investing is undoubtedly a smart option, but only when your circumstances allow you to. If you’re in huge debt or running out of money and you still keep on investing, people would call you a fool. So first think about your present condition and then decide on what’s necessary – investing or using that money?

Final words

Though there are a lot of other pointers you should know with respect to inherited investments, we hope the above things will help you get a good head start.