What to do with an inheritance? Seven ideas that don’t involve spending it.

With a bit of strategy, you can turn your inheritance into a lasting investment that secures your and your family’s financial future. It might involve patience and self-control, but there are so many vehicles that turn an inheritance into “legacy wealth”; capital that can last for generations.

If you’re wondering what to do with an inheritance, here are seven ideas that don’t involve spending it all at once and instead might help you make the most of your newfound wealth.

What to do with an inheritance: seven investment ideas

1. Invest in property

Many experienced investors will tell you that one of the smartest and most stable ways to grow your wealth is by investing in property.

Whether it’s residential or commercial real estate, property has historically been a reliable investment, particularly in Australia, where the asset class has performed well even in the face of recessions and financial crises.

Residential property

Buying a home or rental property can provide a modest income stream through rent, plus the potential for significant capital gains over time. While it pays to consult the experts first (especially your accountant or financial planner), resi property has produced considerable wealth for investors who have little to no market experience.

Commercial property

If you have a larger sum to invest, commercial property can offer higher rental yields than residential property. With Australia’s growing population and demand for commercial premises, this could be a lucrative option for those looking for strong, long-term returns. Of course, it’s can be more complex an investment than residential, so many investors first consult experienced property investors or choose to invest in a property syndicate.

Property offers the unique benefit of being a tangible asset—one you can touch, improve and actively manage. It’s not without risks, but the potential for long-term appreciation makes it a wise choice for many.

2. Diversify with stocks and ETFs

If you’re comfortable with a bit of risk and are looking for a way to diversify your inheritance, consider investing in the stock market.

Stocks

Stocks (or shares) can offer high returns, but they’re also volatile. Markets can swing drastically due to economic changes, company performance or even global events.

ETFs (Exchange Traded Funds)

For those seeking diversification, ETFs provide a way to invest in a variety of companies across different sectors. They tend to be less risky than individual stocks because they spread your investment across multiple assets.

While shares can yield high returns, the volatility can be stressful for some investors, particularly if you prefer a more stable investment option.

3. Consider bonds and fixed deposits

If you’re looking for a lower-risk option, bonds and fixed deposits might be worth considering.

Bonds

Government bonds are generally seen as incredibly safe investments, given they are backed by the government. They offer fixed interest payments, making them a predictable income source. However, the returns are usually modest, especially in comparison to the potential returns from property or stocks.

Fixed deposits

With fixed deposit accounts, your money earns interest over a set period. It’s a low-risk, low-return strategy but could be a good option for those who want to preserve their capital and earn a small return without exposure to market volatility.

While these options offer stability, they may not keep pace with inflation in the long run, and that means diminishing the real value of your inheritance over time.

4. Start or grow a business

If you have an entrepreneurial spirit, using your inheritance to start or grow a business could be for you. Investing in a business can offer high returns if successful, and it provides an opportunity to work on something you’re passionate about.

That said, starting a business carries risks—many startups fail within their first few years. It’s essential to do your homework, have a solid business plan and be prepared for a significant time commitment.

5. Pay off debts

Using your inheritance to pay off debts can be one of the most effective ways to secure your financial future.

Credit card debt

High-interest debts like credit cards can quickly eat away at your finances. Paying these off can save you a significant amount in interest payments.

Mortgage

If you have a mortgage or other loans, using your inheritance to pay down these debts can free up cash flow and reduce financial stress, allowing you to allocate funds to future investments. That said, leverage can be the tool required to help with a successful investment that is otherwise out of reach. This strategy of course necessitates a chat with your financial planner or accountant to ensure you’re not over-leveraging or risking mortgage stress.

6. Build an emergency fund

Life is unpredictable, and having an emergency fund can provide peace of mind. Setting aside part of your inheritance in a high-interest savings account can help cover unexpected expenses like medical bills, home repairs or sudden job loss without derailing your financial goals.

A good rule of thumb might be to have three to six months’ worth of living expenses in an easily accessible account. This strategy ensures that you have a financial cushion without needing to dip into your long-term investments.

7. Invest in your education or skills

“Generally speaking, investing in yourself is the best thing you can do.”

They are Warren Buffet’s words, and the statement holds true for many. Using your inheritance to invest in yourself is a powerful way to increase your earning potential. Whether it’s a university degree, a short course or learning a new skill, education can be a valuable long-term investment.

Enhancing your skills or gaining new qualifications can lead to better job opportunities, promotions or even a successful career change. It’s a way to grow your wealth indirectly by increasing your capacity to earn more over time.

How to choose the best option for you

When deciding what to do with an inheritance, the right choice will depend on your financial goals, risk tolerance and personal circumstances. Diversifying your investments can help you balance risk and return, and it’s very wise to seek advice from a financial advisor before making any big decisions.

Your inheritance is a chance to secure your financial future. By making thoughtful, well-informed decisions, you can turn this gift into a lasting legacy that benefits you and your loved ones for years to come.

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