The best way to invest your inheritance money: A case study

Inheriting money can make investing a bit more complicated. All of a sudden your financial situation drastically changed and you are confronted with completely new options and questions. Today we are trying to answer time by looking at a very specific example.
 
 

Rosa (name changed) is one of Selma's clients and faced this exact situation. When she had inherited 200'000 CHF, she asked Selma for help before making any big decisions. We’ve analysed her situation and shared it for all of you who face similar obstacles.

How much money should I invest? How much money should I keep in cash? Is it even feasible to invest with this amount?

 

Investing Your Inheritance Money - Case Study Background

 
 

Rosa, 32 years old

  • Inherited 200’000 CHF in cash from her grandparents.

  • Intends to buy an apartment within the next 3 years and will need 100’000 CHF for a down payment.

  • Earns a stable monthly salary of CHF 7’200.00 and can put 900 CHF aside every month (after tax).

  • Rosa is a cautious person and not very well versed in finance. She prefers to keep her money safe but is fine with taking a little risk to increase long-term growth. 🌶🌶

 
 
Together we'll now walk step by step through all phases in Rosa's decision-making journey and everything that influenced her while deciding on her investment strategy.

1

Rosa’s financial status quo

This is where we start. With a look at not only Rosa’s inheritance, but also into her complete financial situation. Does Rosa have investments? How much cash does she need? How much is she earning?

 
Screen Shot 2018-10-03 at 15.40.33.png
 

Chat with Selma, to get investments that fit with your financial situation.


2

Rosa’s cash vs. investments relationship

What defines cash and what defines investments? Why is too much cash not good? In order to boil it down to the money Rosa an invest, we need to find out how her money is currently organised.

At Selma, we define cash by money you have access to at all times on your bank accounts.

Currently, most of Rosa’s money is held in cash, what means that she could use it whenever she likes, but that it is not set up to grow over the next years. Worst case, it will even lose value due to inflation.

Always accessible “cash”: 220’000 CHF (and growing every month due to her income)

“Bound” investments: 46’000 CHF

Nobody needs that much cash available at all times. 🤑 There are so many better ways to make this money improve your financial situation in the future. As Rosa knew this already, in our talk we then focused on her plans for the future.

 

3

Rosa’s plans for the future - what will she need money for?

When looking into investment & pension planning options, term "long-term" comes up quite often. And it is true – in order to profit from your investments, it is important to know that your investments need time to grow with the global economy. Long-term investments are not for people who want to bet on Apple stock, but for growing your wealth over a very long time.

Therefore, in case Rosa wants to go for a long-term investment plan, it is important to check if there are big purchases planned for the near (next couple of years) future.

I'd like to buy an apartment! In say... 3-5 years.

 

As Rosa has already been checking prices, we know that she will need around 100'000 CHF as cash in those 3-5 years.

And yes, I'd like to make sure I can live nicely from my pension in about 30-40 years.

This is a very clear goal and points us towards a long-term strategy, where her inheritance can grow into money that she can spend on joyful things once she retires. Before deciding how much money we will invest, we’ll start by looking into cash she needs to have accessible at all times.
 

4

The cash buffer: How much Rosa should keep on her accounts

How much cash should one be able to access at all times? What is a good safety measure? 🤔

Rosa will need to make sure to have enough cash on the side for spontaneous bigger shopping trips, emergencies and maybe times between two jobs.

We often say 3 times the monthly salary is a good measure to keep in cash – Rosa wanted to be extra sure and opted for 4 monthly salaries to keep in cash at all times.

She will also be able to put 900 CHF per month aside from her current salary, which per year sums up to: 10’900 CHF

Taking her plans to buy a flat and her monthly savings into account, we together decided that she wouldn’t have to already keep the 100’000 CHF for the flat stowed away on her bank account now, but at least a big chunk of it. Together we have arrived at the following cash buffer to be kept on her bank account.

 
Screen Shot 2018-10-03 at 15.49.55.png
 
 

5

The exact amount Rosa should optimally invest

We have arrived at the grand finale. We are looking into how Rosa got to her investment decisions. As a reminder, this is a short overview of our analysis of Rosa’s financial situation.


✅ Stable monthly savings

✅  Cash buffer of 4 monthly salaries covered

⚠️ 92% of finances is kept in cash or focuses on keeping its value (Bond, Säule 3)

⚠️ No part of her wealth has growth potential 

⚠️ The 220’000 CHF kept in cash doesn't get any interest and its purchasing power would diminish by inflation, approximately -1’320 CHF per year.


 
Screen Shot 2018-10-03 at 15.40.33.png

 
 

Let’s do the math once again!

 
Screen Shot 2018-10-03 at 15.52.39.png

👉 Rosa can invest (max) 120’800 CHF of her cash.

 
 

6

Investing with Selma: Rosa’s decision to invest for the long-run

Rosa has only very little knowledge about stock markets and trading. Her job also doesn't really allow her the time to start actively trading on a daily basis. She doesn't feel equipped to do all of this herself.

As studying Financial Management for the next 3 years before starting to invest is also not really her dream option, she decides to start investing with Selma.

Rosa loves the idea of having some piece of mind after a long phase of figuring out what to do with the money. She is also quite looking forward to an feeling of achievement by having all her finances structured.

 
 
 

Convincing arguments for Rosa:

👉 Selma chooses all investment products fitting to her full financial situation, not only to the big amount of inherited money.

👉 Selma adapts the combination of her investments, when something big changes: Once she is going to buy her apartment, Selma will shift the investments accordingly, as real-estate also needs to be considered as an investment.

👉 Selma does everything for her. After analysing her situation, she is now managing the money for years to come, without Rosa having to constantly keep an eye on the market.

You can read the exact steps of how her investments are chosen with Selma here.


The Outcome: Rosa’s individual investment strategy

Selma put together a mix of different investment products (ETFs) for her and the initial investment sum. This investment strategy is based on everything we learned about her.

The different percentages of different products are defined by Selma and mirror how much risk she should take and how much should get invested in products with growth potential. And very important - they are all spread globally.

 
 

Get the perfect mix of these investments for yourself. Chat with Selma to get started..


 
Investing inheritance money is a special case, as the investment sum often comes out of nowhere and is then seen as this "isolated inheritance". But it has to be considered as a part of the total financial situation in order to keep everything in balance.
These are some general take-aways - for investing inherited money, but also cash in general.


Invest monthly

It is always said that the best moment to start investing was yesterday. Even if markets "seem" bumpy or you heard that US markets are too expensive right now, a professional investment service will use their strategic experience to buy and sell at the right times. In order to make sure you constantly avoid "the wrong day" to invest, investing monthly is even better than investing all the money at the same time.

Go for the long-term if possible

Mostly when saving for the long-term, the reason is to make sure your quality of life during your retirement is secured. Keep the money you need for bigger purchases (a boat, a house, your kids' university fees) in cash, but take the rest and start investing now.

Invest internationally

Even if you feel you know too little about the economy in other parts of the world - the global economy is growing. This doesn't say that the economy in your home country or the region you feel most comfortable with is. By investing with a service that gives access to global products you make sure you balance out a risk of one economy collapsing.

 

Are you in a situation that needs a closer look as well?

 

Simply reach out to our Selma crew and let's figure it out. We would love to convert your headache situation into a structured investment approach for you, as well as a case study for fellow investors!

Patrik Schär, CFA

CEO, Founder, Financial advisor

 
case studyKevin Linser