Over the past few weeks, I’ve received a few emails from friends and readers of the blog about how to handle a financial windfall. A few were simply curious. A couple were actually facing the situation and needed grounded and impartial advice.
In The Old Money Book, I proposed, after an initial consultation wth a Certified Public Accountant to address any tax issues and potential liabilities, a waiting period of six months or so. During this time, it’s possible to let ideas about how to use the money come and go; the emotional rollercoaster can run its course; and hopefully a little balance and perspective can take hold before any financial decisions are made.
One friend offered a different perspective that, she confided, had helped her tremendously. She received what I’ll call a mid-range inheritance: mid-six figures. Not enough to quit her job and live however she chose off dividend income (seven figures, these days), but enough to possibly change her life considerably as a single, working professional with no children.
Having had a history with credit card debt due to a close, personal relationship with Jimmy Choo, she took a different approach. She followed my advice and immediately sought the counsel of a Certified Public Accountant in her area who was referred by an Old Money Gal she trusted. She received advice about her potential tax liability and planned for that.
She then sought out advice from another friend who had sold his company a few years ago and was now committing his energies and talents to various community projects, pro bono. In her estimation, he’s managed to handle his windfall and now lived very comfortably from the proceeds of his investments.
He spoke with her at length, shared some sage wisdom, and then referred her to his money manager. The money manager listened to her at length, discussing her concerns (that she would spend all the money if it was on hand for any period of time) and aspirations (travel, early retirement).
They then jointly decided that she would set aside a small amount for a vacation, to be taken the next summer. A percentage of the inheritance would be immediately invested in very dull, safe, and predictable financial products (annuities, or the like, I’m guessing) which would, at staggered intervals in the future, begin to trickle dividends into her checking account on a monthly basis. Some of her portfolio would be invested in precious metals. All of it would be available, but difficult, to liquidate. Preservation, diversification, and growth were the by-words. A stack of cash on hand was to be avoided.
Two years later, this has worked very well for her. Why? Because, she says, she gets to pretend the money never existed. In another year, she’ll begin to receive monthly dividend payments from one product in the portfolio. She feels comfortable enough, now, to be able to handle the extra, disposable income. She can choose to reinvest it, or to use it wisely. (She mentioned that she was considering buying some real estate.)
It’s not what I had recommended in the book, but it worked for her. So…I’d love to hear your comments, thoughts, and experiences. Stack of cash to hold for a minute? Or immediate investment? Which option seems best? And why?