Half of people don’t know what to do with investments they inherit

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on the Opinium poll (for the company) of 2,000, which shows Half of people don’t know what to do with investments they inherit.

Key findings:
  • A third of people expect to or have received an inheritance.
  • Just 52% are confident that if they inherited investments, they’d know how to manage them.
  • Men are slightly more confident (56%) than women (48%).
  • The squeezed middle (those aged 35-54) are the least confident age group when it comes to managing inherited investments (45%).
  • When asked what they’d do with an inheritance, 15% of people said they’d invest it, while 38% would put it in a savings account.
  • The average inheritance is £11,000, according to the ONS.
Sarah Coles says:

“Half of us wouldn’t have the faintest idea what to do if we inherited investments from a loved one, and with one in three of us expecting to inherit something, there’s a reasonable chance that an awful lot of us will face this dilemma. If we don’t get to grips with investments, we could make some very expensive mistakes.

“22 million people held stocks and shares ISAs in 2017/18, while millions more held shares, unit trusts, investment trusts and investment-based insurance products, so there’s a reasonable chance that anyone set to inherit could receive at least part of the legacy in investments. Unfortunately, 48% of people don’t feel confident they’d be able to manage them properly.

“If we don’t know what to do with the investments, there’s a risk we just cash them in. Our survey shows that 8% of respondents would leave an inheritance in their current account, while 38% would put it in a savings account. But converting investments into cash could come at a high price. If you put the average sized inheritance of £11,000 into a savings account, you could lose £17,686 over 20 years. This assumes a 0.5% rate on the savings account and 5% annual return if you’d kept the money invested. Rock-bottom interest rates – and rising inflation – can quickly erode an inheritance left in the bank.

“Women are more vulnerable to this than men: 48% of women feel confident about managing inherited investments, compared to 56% of men. This is particularly alarming given that men are more likely to invest, and women tend to marry older men and outlive them. It raises the risk that women will inherit investments and have no idea what to do with them.

“The squeezed middle is vulnerable too: just 45% of 35-54 year-olds are confident about managing inheriting investments (versus 54% of those aged 18-34 and 55% of those aged 55 and over). This reflects the fact that this age group tends to be less confident about their finances. The older generation are more likely to be investors themselves, and increasingly so are the younger generation, some of whom have discovered investing during the pandemic.”

10 Common mistakes to avoid when you inherit investments:
  1. Acting too fast. When you’re still grieving, getting your head around investments can feel like a step too far, so you may just give up and sell up. Take your time to think about how best to manage the money.
  2. Sticking it in cash. The effects of inflation mean your money could lose value in real terms.
  3. Assuming it will last forever. If you’ve come into some serious money, you may be tempted to spend without any real plan. There’s the risk you could burn through it much quicker than you imagine.
  4. Not considering your finances as a whole. Keeping the money invested may seem like a smart move. However, repaying expensive debts, building an emergency cash buffer or topping up your pension could be a better use of the inheritance, depending on your situation.
  5. Getting emotionally attached to “mum’s shares”. Some beneficiaries keep investments that don’t suit them, simply because they find it difficult to let go. This is even more likely if there are paper share certificates that you feel sentimental about.
  6. Not reconsidering your portfolio as a whole. If you already have investments, you need to work out how the inherited ones fit into your portfolio. They could make it less diversified and skew the risk level.
  7. Ruling out taking advice. You may feel that paying for advice will eat into the inheritance, but if you’re not confident about investing, an adviser can help you manage the investments, and protect them from the taxman.
  8. Not considering the tax position immediately. While you don’t want to make any rash decisions, you do need to pay attention to tax, especially if you inherit investments in a pension.
  9. Not taking advantage of any additional permitted subscription (APS). Savers that have inherited an ISA from a spouse or civil partner can apply for an APS, which is an additional ISA allowance. This means that inheriting the ISA won’t eat into your own ISA allowance (£20,000 for 2021-2022).
  10. Forgetting about the FSCS protection. If liquidating investments is the right thing to do for you, bear in mind that if you have more than £85,000 in cash you should try and spread it across different institutions. This is because if a bank collapses, the Financial Services Compensation Scheme will only protect up to £85,000 held with each institution by each person.


Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay