Your Investements: Inheritance: Grandma was really smart

Modern invention has banished the spinning wheel, and the same law of progress makes the woman of today a different woman from her grandmother.” – Susan B. Anthony

“I really do sound like my mother.” When we are young parents the thought that we will end up like our parents is something that we never believe will happen. Fast forward a few years and all of the sudden you say something and stop yourself in disbelief! Congratulations, you have become your parents! Just a few weeks ago, I requested from my teenage son to turn off the TV and put down his phone. He responded, “What am I supposed to do if I turn everything off?” I answered that he could always get off the couch and go for a run, or pick up a book or study Talmud. Then in a silent response – when it was clear that no words were needed – I just got a stare followed by some type of grunt. Two seconds didn’t pass by after I had a flashback to when I was 16 and lying around on the couch playing some kind of handheld basketball game and my mother, of blessed memory, said “Aaron, why don’t you put down the game and study Talmud!” If I recall correctly, my response was similar to my son’s.

While we may not want to turn into our parents, there is an issue where many tend to think their parents were brilliant. When it comes to receiving an inheritance for some reason, we think that our parents were Warren Buffett. Without question, the most common mistake people make when they receive an inheritance, especially a stock and bond portfolio, is to become emotionally attached to what they receive. While usually this would apply to inheriting from one’s parents, last week I had a phone meeting with someone in the US who received money from a grandparent. After reviewing their goals and needs, it became very apparent that the inherited portfolio left as is, would be a major mistake. When I suggested making the portfolio more tilted toward growth, I was met with, “I don’t want to make any changes. My grandma was very smart and great in investing and I trust that what she did is good for me.” To which I responded, “your grandma was a very smart investor and she had a great portfolio for someone 92 years old, but you are 34 and have a different financial reality.” I explained that there are reasons that grandma was holding certain positions, most probably for tax planning and income generation considerations, and these reasons just weren’t relevant for a young person living in Israel.

Along the same lines of what has already been mentioned, due to sentimental reasons, people refuse to make any changes to the portfolio that they have inherited. The problem with this is that your needs and goals are far different than those of the deceased. I like to encourage clients to start from scratch. They should define their own goals and needs and then create a portfolio with an allocation that will help them achieve those goals. Take a step back and catch your breath. You don’t need to invest immediately. Don’t fall into the trap that I hear so often, “The money is just sitting around doing nothing. I am losing so much money.” First of all, money sitting around for a month or two will not send you to the poorhouse. For example $300,000 invested at 3% is $9,000 a year. That’s $750 a month. Not a huge amount of money to ‘lose’ by sitting around “doing nothing.” Making the wrong decision on what to do with the money will end up costing a lot more.

Make financial order. Figure out what you want to do both in the long and short term with the sum. Maybe you want to use the money to pay off part or all of your mortgage. Helping out children, giving money to charity, supplementing your current income, planning for retirement; there are a lot of things to think about and it may be a good idea to sit with a financial advisor. Financial advisers will help you look at things objectively, stay level-headed and bring a wealth of experience to the table in these issues.

Grandma was smart with her money. Now it’s your turn to not just inherit her money but her smarts as well. Invest the money correctly for your financial well-being. That’s what she would have wanted.

The information contained in this article reflects the opinion of the author and is not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.