How Should You Invest an Inheritance?

You have inherited a sum of money but have some concerns about how to invest it, as there are many options available to you.

Traditional wisdom would be to invest any large sum of money using a method called dollar-cost averaging, which simply means investing it a little at a time. The idea is that you take on less risk by trickling your money into the market rather than dumping it in all at once.

If you like this option, you would put your entire inheritance in a savings account or money-market fund, and then, over the course of a year or so, invest an equal amount each month in a portfolio of stocks and bonds.

But there is another option for those who would like to get their money working faster. This is to determine an appropriate asset allocation-a mix of stocks, bonds, and other investments-that meets your risk tolerance and helps you achieve your financial goals.

With this option, you would invest the entire inheritance at once based on that mix of assets. Proponents of this approach say your money starts working for you quickly, while not leaving you too conservatively invested for a period of time, as dollar-cost averaging might.

Regardless of the approach you choose, your assets, ideally, should be divided between different types of investments based on your financial goals and your risk tolerance.

Your advisor can help you determine the appropriate asset allocation-one that takes into account the fact that, sadly, no one knows how the market is going to perform.