Case Maria: How to invest money you inherited

 

Inheriting money can make investing a bit more complicated. All of a sudden you need to deal with this new large amount of money. That can make an already stressful task even more frustrating.

"Maria" is one of Selma's user she faced exactly this situation. When she had inherited 200'000 CHF, we checked together how to structure her financial life.

I want to buy an apartment. Should I still invest? If yes, how much? 

Background

Maria, 32 years old

A software developer with a passion for outdoor sports.


  • 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).

  • Maria is a cautious person. She prefers to keep her money safe but is fine with taking a little risk to increase long-term growth. 🌢🌢

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Maria's financial life in a nutshell

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βœ… Stable monthly savings

βœ…  Cash buffer of 4 monthly salaries covered

⚠️ 92% of finances is kept in cash or focuses on keeping its value.

⚠️ No part of her wealth has growth potential 

⚠️ The 220’000 CHF kept in cash doesn't get any interest and its purchasing power is diminished by inflation, approximately 0,6% / 1’320 CHF per year.


What is important to keep in mind?

Since Maria is planning to buy an apartment within the next 3 years, it is important to make sure that her downpayment of 100’000 CHF is not put at risk. Also Maria should hold a cash buffer that covers unforeseen expenses so she doesn't need to sell any investments right away if an unexpected invoice arrives. 

Because Maria puts money aside monthly she doesn't need to hold the whole 100'000 in cash right away. Within one year she has already saved an additional 10'800.00 that she can used for the down payment. 

⚠️ If you have known larger expenses coming within the next 3 years, you should reserve that money in cash.

She still has 33 years until retirement. This and the 900 CHF that she puts aside every month increases her ability to take more risk with investments. 

πŸ‘‰ Since she can save monthly, 99’000 CHF is enough cash to ensure she has enough for the down payment and a comfortable cash buffer for rainy days. β›ˆ


How Maria's wealth should look like

We calculated how her finances should be structured to in order to make her situation optimal.
Some of the things we took into account:

  • her goals
  • her down payment for her 🏑
  • her 900 CHF monthly savings
  • her future income until retirement
  • and particularly her true relationship with risk 🌢 

CURRENT

  • 85% cash
  • 15% in low risk investments
    (things that aim to keep their value)
    Β 

OPTIMAL

  • 45% cash – covers cash buffer and expenses for her upcoming loan.
  • 14% in investments optimized to keep their value (lower risk)
  • 41% in investments optimized to grow (higher risk)

What should Maria do?

πŸ‘‰ She can invest max. 120’800 CHF of her savings.

Existing savings
220’000 CHF

- Cash Buffer & Future expenses
99’200 CHF
____________
Max. savings to be invested
120’800 CHF

To optimize her finances, Maria can invest the part of her savings that is not needed for rainy days or for the down payment. 
Β 


How to invest her 120’800 CHF best?

Maria has already invested 15% of her money in areas that focus on keeping its value (SΓ€ule 3a, and her Bond fund), this is why her remaining investments can focus on growth while still matching her overall risk preferences.

To do this in the most effective way, there are many things Selma takes into account:

Β 

1

Her investments are adjusted to her risk and spread across global markets and industries.

Her money is spread across global financial markets and industries in the same way as money is allocated globally. Her risk is thus spread as broad as possible and her investments move similarly as the global financial markets. 

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2

We take into account if different markets are cheap or expensive. 

Selma automatically calculates if market prices are cheap or expensive. Currently (April 2018) we reduce investments in US Stocks and company loans, while we increase investments in emerging markets. This helps to reduce risk, when markets would drop. Read here how Selma does it.
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3


We invest her 120’800 CHF step by step.

To reduce her risk further, Maria's investments are bought in batches over a period of 3-4 months. This is to make sure that her entire investment portfolio isn’t bought at the highest entry price.
Β 

4

Once Maria has bought her apartment her profile is automatically adjusted. 

When Maria has made her downpayment for her apartment, she can start to invest monthly. Since monthly investing does not create any additional costs with Selma, this helps to reduce the risk of fluctuating prices and increasing her chances to grow her savings in the long run.

Because of the purchase of the real estate Selma also changes her investments: 

  • Selma excludes investments in real estate
    because Maria now has a substantial part of her wealth already invested in it. 
    Β 
  • Selma automatically reduces the risk of her investments to maintain her overall risk level. Once she bought her apartment, she also invested it risker than before, when she kept the money in cash. 


Wrap up

  1. Taking your personal financial situation into account makes sense, in order to find out how much you can really invest and how much risk you can take with your investments.
    Β 
  2. Every persons investments should look different, as they depend on their financial life, goals and risk preferences. 
    Β 
  3. Changes in your financial life often require changes in your investments. Selma takes care of that automatically. 

Are you in a situation that creates some headache as well?


Sign up here.  And request a free checkup of your finances. Together with one of our experts, we can take a closer look at your situation.

 
case studyKevin Linser