6 easy but expensive mistakes to avoid with inherited investmentsSeptember 2021
If you have inherited investments from a loved one, there are six common but costly mistakes you could make. Discover what they are and how to avoid them
When you consider millions of people across the UK have investments, you probably won’t be surprised to learn that recent research shows a third of us expect to inherit them at some point.
What may surprise you though is that research by Hargreaves Lansdown found that half of those who receive investments won’t know what to do when they get them.
More worryingly, the research reveals that 38% of those questioned said they would cash in the investments and put the money into a savings account.
Read on to discover why cashing investments in could cost you dear, and other costly mistakes that are commonly made with inherited investments. In addition, learn how your financial planner could provide peace of mind and help you to make a decision you won’t later regret.
1. Cashing in your investment
Disinvesting and putting the money into a bank account means it’s no longer exposed to potential growth. Considering that nearly 2 in 5 people say they would cash in inherited investments, it’s a common “mistake” you should avoid.
The long-term potential growth offered by investing is something our blog 3 practical reasons cash savings could cost you dear discusses. It points to the 2019 Barclays Equity Gilt Study, which shows that if £100 was placed into a savings account in 1899, it would have been worth around £20,000 in 2019.
While this may sound impressive, the study also shows that if the money had been invested in stocks and shares, it would have been worth £2.7 million in 2019.
While the loss of potential growth is worrying enough, many savings accounts still offer historically low interest rates. In August 2021, the Guardian revealed that several easy-access savings accounts were offering as little as 0.01% interest.
More than this, the accounts are widely held ones offered by four major high street banks. When you consider that inflation stood at 2% in August 2021, the value of the money in these accounts could be reducing by 1.99% in real terms.
By speaking with your financial planner, you could potentially avoid this costly mistake, as they will help you understand the investments you’ve received and what your options might be.
2. Not considering the tax implications
If you’re not experienced with investments, you may not realise that you may be liable to certain taxes such as Capital Gains Tax.
This is where your financial planner could help, as they will ensure you fully understand the tax implications of your inherited investments, and ensure you use the relevant allowances as effectively as possible.
3. Acting too quickly
The world of investing can be complex, and sometimes overwhelming. A common mistake can be to make a knee-jerk decision in a bid to solve the issue of not knowing what to do, only to later regret it.
By taking your time to decide, and speaking to your financial planner about your options, you’ll be able to weigh up your options and make a decision you’re likely to be happy with in the long term.
4. Remaining in investments that have the wrong level of risk
When you receive your investments, they will be exposed to whatever level of risk the deceased was happy with. This may not be the right level for you.
If you were passed the investments from an older member of the family, for example, the investment could be in low-risk funds, which may reduce growth potential. That said, if they had substantial capital, they may have been in funds that were high risk, and depending on your situation, this may not be appropriate for you.
Your financial planner will be able to confirm the level of risk your inherited investments have, and whether you should consider moving them to a higher- or lower-risk alternative.
5. Remaining emotionally attached
While understandable, be careful not to hold on to underperforming investments because they have sentimental value. Seeing the investments as “mum’s shares” could mean you hold on to underperforming investments when it might be better to switch to other funds.
Speaking with your financial planner will help you understand the performance of the investments you’ve inherited, and whether you should be considering other options.
6. Keeping them separate from your wealth
If you keep the inherited investments separate to your own wealth, it’s possible you may treat them differently and make decisions you might not normally make.
Integrating the investments into your own portfolio, and bringing them into your wealth strategy, could help you make more appropriate decisions. For example, you may want to consider switching the inherited investments to ones that provide greater diversity within your portfolio.
Get in touch
If you would like to discuss inherited investments and how they could dovetail into your existing wealth, please speak with your financial planner who will be pleased to help. Alternatively, email firstname.lastname@example.org or contact us on 028 9023 0696.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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