The Top 3 Investing Mistakes New Inheritors Make (And How to Avoid Them)
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Getting a multi-million dollar inheritance comes with a lot of pressure.
If you're feeling overwhelmed by all the financial decisions in front of you and worried you're going to make a mistake, this is the episode for you.
Watch, listen, or read for a breakdown of the three most common investing mistakes I see new inheritors make: from moving too fast (or not fast enough!) to making decisions with incomplete information or based on that TikTok you saw about crypto.
I'll walk you through exactly what you *should* be doing after inheriting, to give you the confidence to start building a long-term investment strategy that aligns with your hopes, dreams, and values.
🗓️ Schedule a FREE call to start building a plan for your inheritance.
Transcript:
Hey, I'm Katherine and thanks for joining me at Heir Necessities, the podcast that breaks down all of the complex financial topics that Gen X, Millennial, and Gen Z inheritors need to understand. I'm a certified financial planner, a financial advisor for inheritors and an inheritor just like you.
Each episode on this podcast is breaking down a different topic that my clients, my prospects and my friends are asking me. My hope is that you can stop managing your money by asking Google or ChatGPT what to do and get the real easy to understand jargon free answers you need with this podcast.
On today's episode of Heir Necessities, I am breaking down the top three investing mistakes that new inheritors make.
These aren't complicated gotcha mistakes. These are easy and common mistakes that I see inheritors make over and over.
My goal at Sunnybranch is to provide easy to understand long-term investment portfolios that are built around my clients' values. I'm not here to sell fancy investment products or try and sell you on double digit returns for the next 20 years. No one can actually promise and deliver those things.
I am here to help my clients understand their investments and feel good knowing that their investments are a force for good in this world.
Mistake #1: Making Financial Decisions Too Quickly After Inheriting
Let's dive into the first mistake I see new inheritors make, which is making decisions too quickly.
Oftentimes when you inherit money, you're also going to be inheriting someone's financial advisor. If whoever you inherited money from had their own advisor, that person is going to try and retain you as a client. They don't want to lose those assets.
And so to do that, they're probably going to be pretty aggressive in terms of reaching out. And they're going to be reaching out with what they call solutions or options.
The problem is that when they're reaching out, you aren't ready to be accepting solutions or choosing options. You may be grieving or you might just be overwhelmed with the change of going from a person who has a normal amount of money to a person who has three or five or 10 or $20 million. You're not ready to make decisions.
And that is not something that these advisors are really focused on. They don't know you. They're not that concerned about you. They're concerned about these assets and about getting that buttoned up.
And when you understand that, you can say more confidently that you're not ready to make a commitment. You can take time, all the time you need, to make these decisions. And most importantly, you can take all the time you need to actually understand what you are invested in.
At Sunnybranch, I work with inheritors with two different fee models.
Understanding Fee Models: Hourly vs. AUM Financial Planning for Inheritors
I have that standard wealth management AUM fee, which is 1% of the assets I manage, which encompasses all of the work that I do for my clients.
But for clients who don't have assets to manage or who aren't ready for me to manage their assets, I do work on an hourly basis. I do this because I know that as a new inheritor, you're not ready to sign up for what's hopefully a decades long commitment. You're looking for someone to actually answer your questions.
And when I work with inheritors who have assets with other advisors, so often I hear, well, I'm not ready to switch. And then in the next breath I'll hear, I don't actually understand what I'm invested in.
If you're working with an advisor who hasn't taken the time to educate you and to get you feeling really confident about what you're invested in and why you're invested in it, I want you to ask yourself why. What are they doing?
Because yes, they're investing your money, but a huge piece of what a financial planner and an investment advisor does is education. And this is where I see that mistake come in, is people aren't getting the education that they need in order to be able to make informed decisions. It's not your fault.
Why Rushing Into Investment Decisions Can Backfire
If someone proposes something and you feel like you're rushed or forced into it and you say yes, this happens all the time and it's not necessarily something nefarious on the part of the advisor. They're just trying to do their job and do what they think is right and oftentimes those are not bad decisions.
But if you don't understand them, it doesn't necessarily mean that they're the right decisions for you.
This could be something like being pushed into an annuity, which is probably at the worst end of what you're looking at. Or it could be as simple as they want to rebalance the portfolio and reinvest everything, they go ahead with it because they don't know that in a few months you're gonna be emptying that portfolio or pulling out a bunch of money to buy a house.
This is where that long-term thinking and planning and decision-making process comes into play. But it's hard when you're just in this crush of people who want things from you to feel like you have the agency to stop and take a break and say, I'm not ready to do that, I'll get back to you.
But in the vast majority of cases, you absolutely have the power to do that. There are very few things throughout the inheritance process that absolutely need to get done by a certain point or that can't be done in a way that's easier for you or postpones the question.
Legal stuff, tax stuff, sure, there are deadlines there. But in terms of the nuts and bolts of the portfolio, there are rarely these extremely time-sensitive decisions.
Mistake #2: Not Taking Any Action With Your Inheritance
The second most common mistake I see new inheritors make is actually the exact opposite of everything I just talked about. It's not doing anything with their investments.
And don't get me wrong here because I am a huge advocate for taking all of the time you need to adjust after someone you love dies. I do not think that you should move too quickly after getting an inheritance. I really think taking time is important.
That being said, there are a couple of easy steps that you can take at the beginning, right at the start of getting an inheritance to kind of prep your money for an extended period of just sitting.
And then there's also a point further down the line when that inaction has so much inertia that even though you might feel like, I'm ready to do something, you don't know how because all of that money is still sitting.
Smart First Step: High-Yield Savings Account
Let's talk first about some of those easier steps that you can take.
The first, if you have a high amount of cash that you inherited, is putting it in a high-yield savings account. Right now, interest rates are relatively high. You can still be earning three and a half, four percent on that cash.
And if you get it in an account with higher FDIC insurance, then you can have up to $25 million that's in a high-yield account and FDIC insured.
So a first easy step if you inherit a lot of cash is finding one of those accounts. I have ones that I work with at Sunnybranch and putting it there so you know your money is safe and doing something for you.
When to Sell Concentrated Stock Positions After Inheriting
And the second easy thing that a lot of new inheritors may want to do is consider diversifying out of concentrated positions. This might not be what everyone wants to do, it might not be for you, but it's not uncommon for inheritors to receive concentrated positions.
Usually the reason is that these were positions that built a lot of wealth over time. So they had high unrealized capital gains. When someone dies, these assets get the step up in basis. So they wanted to die holding these assets so then you, their heir, could be able to sell them or rebalance or whatever you want to do.
A lot of people aren't going to be comfortable holding these assets, these concentrated positions for the duration of the six months, 12 months, 18 months when they're just kind of trying to get their head on straight.
So if you inherit a concentrated position and you're not comfortable holding that concentrated position, then understanding the tax impact of the sale and making that sale can be an appropriate step.
It's not gonna be for everyone. Some people are just gonna let that position ride and that is totally fine.
But if you are worried about that concentrated position, it can be easier sometimes to just get out of it so that it's not on your mind during that period when you just want to not think about anything.
Mistake #3: Getting Distracted by Trendy Investments (Crypto, AI Stocks)
The last investing mistake that I see new inheritors make is getting distracted and wrapped up in what they should be investing in.
Whether it's crypto or AI stocks or any of these hot new trends, I see people who don't necessarily have a lot of interest in investing, which isn't to say they don't want to be investing, it's just not something they want to spend time thinking about.
They really want to have that set it and forget it, make sure someone else is taking care of it and they're good. But then they have these feelings of, well, if I don't check out crypto or if I don't invest in these AI stocks, then I'm going to be missing out on future growth.
It's too much of listening to the internet and social media and the way finance bros talk about money.
Long-Term Investing vs. Chasing Trends
If you're feeling drawn this way and you're excited about trying those things, by all means, go ahead. Don't put all your portfolio in there, but if you want some fun money to play around with, go for it.
You're not really who I'm talking about here. I'm talking about the people that feel that they're doing wrong by not investing in those things. And I want to reassure you that that is not the case.
Over and over and over again throughout history, it has been shown that the best way to build wealth is to invest money and keep it invested over the long term.
Invest it in a globally diversified portfolio with an appropriate mix of stocks and bonds, low fee investments, and then just set it and forget it.
And you can add in these riskier, higher return, higher risk elements, but there's no requirement because the thing about these high reward investments is that they also have higher risk and you might not want to be taking those higher risks.
And you always hear the success stories of people who took these risks and it paid off. You don't hear from the majority of people who took these risks and it didn't pay off for them. They learned their lesson and move on with their lives.
So don't get overwhelmed by these loud voices telling you everything you should do if it doesn't actually feel like it's the right fit for you.
Get Help: Finding a Values-Aligned Financial Advisor
If you've made it to the end of this episode and you're feeling even more overwhelmed and unsure about what to do with your investment portfolio, I am here for you.
I would love to chat and talk about what you're worried about, what your goals are for your investments, and how you can build a plan that you understand and that aligns with your values.
I want you to understand what you're invested in and to have confidence that your investments are in line with your values and the change you want to see in the world.
If you want to talk more about what that looks like, you can reach out to me, katherine@sunnybranchwealth.com. You can send me a DM on Instagram and if you have any other questions about Sunnybranch, how to get in touch, all that information is in the show notes below.
I'll catch you on the next episode of Heir Necessities.
Let’s take the next step together
Understanding how to invest a multi-million dollar inheritance isn’t easy. Inheritors can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors, to learn how Sunnybranch can help you evaluate your financial situation and build a plan for what should come next.
