Where should you Invest an Inheritance or Business Sale Proceeds?
Brooke Smith
Australia is currently experiencing the largest intergenerational transfer of wealth in its history. Recent research estimates that Australians aged 60 and over will transfer between $3.5 trillion and $5.4 trillion in assets to younger generations over the next two decades. As more Australians receive inheritances, many are asking the same question: How should you invest an inheritance?
This wealth transfer includes family homes, investment properties, shares, superannuation balances, business interests, and a wide range of other assets.
If you receive an inheritance or a significant lump sum from business profits or another financial windfall, the experience can bring both opportunity and complexity. Knowing what to do next can feel overwhelming, particularly when emotions and financial decisions intersect.
The most appropriate strategy will depend on your personal circumstances, including your existing financial position, tax situation, investment and personal objectives, time horizon, and tolerance for risk.
Seeking professional inheritance investment advice before making major financial decisions can help ensure your inheritance or business sale proceeds are used strategically rather than being eroded through rushed or poorly informed choices.
Start With a Plan
Whether you've received an inheritance, sold a business, received a large bonus, or experienced another financial windfall, the first step is understanding any legal, tax, or financial implications associated with the funds.
A financial adviser can then help you assess your immediate priorities and determine whether the money should be used to:
Improve cash flow and financial security
Reduce existing debt
Fund personal or family goals
Build an investment portfolio
Strengthen retirement savings
Your investment timeframe is one of the most important factors in determining an appropriate strategy.
If you expect to access the funds within the next few years, preserving capital may be more important than pursuing growth. If, however, your goals are longer term, a diversified investment strategy focused on growth assets may offer greater potential to build wealth over time.
Best Investment Options for an Inheritance or Business Sale Proceeds
There is no single "best" place to invest an inheritance or business sale proceeds and what suits one person is likely to be different from the next person. Effective wealth management often involves spreading funds across a range of investments and structures that align with your objectives.
Common options include:
Offset Accounts and Cash Savings
For short-term goals or those seeking capital stability, placing funds into an offset account or high-interest savings account or term deposit can provide flexibility while reducing mortgage interest and preserving access to your money.
Debt Reduction
Paying down a mortgage or other personal debt may not traditionally be viewed as investing, but reducing liabilities can improve cash flow, lower financial stress, and strengthen your overall financial position.
Managed Funds and ETFs
Managed funds and Exchange Traded Funds (ETFs) can provide broad diversification across Australian and international shares, fixed interest securities, property, and other asset classes, helping to reduce concentration risk. This option can provide both income and growth over the longer term.
Direct Shares
Investing directly in shares may suit those seeking long-term capital growth and income through dividends. However, individual share investments require careful research and portfolio diversification.
Superannuation Contributions
Depending on your age and circumstances, contributing additional funds to superannuation can be a tax-effective way to enhance your retirement savings. Contribution limits and eligibility rules apply, making professional advice particularly valuable.
Investment Bonds
An investment bond can be a tax-effective way to grow a lump sum of money if your marginal tax rate is higher than 30% and you have a timeframe of at least 10 years but are looking for an alternative to superannuation due to age, contribution limits and flexibility. Before committing to a bond, other strategies that may better suit your situation should be considered.
Investment Property
Property remains a popular investment choice for many Australians. While it can provide rental income and long-term capital growth, investors should also consider factors such as liquidity, borrowing requirements, ongoing costs, potential tax implications and concentration risk.
Important Tax Considerations
Tax consequences should be considered before making any decision on where to invest.
For example:
Income generated from investments may be taxable.
The amount of tax you pay may differ if investments are held individually, jointly or within a company or trust structure.
Business profits may have specific tax implications depending on the ownership structure and whether funds are retained within the business or distributed personally.
Understanding these issues before investing or transferring funds can help avoid costly mistakes and improve long-term outcomes. We can work with you and your accountant to help you understand any tax implications and to help minimise tax where possible.
Common Mistakes to Avoid
Receiving a significant sum of money can create pressure to act quickly. Some of the most common mistakes include:
Making investment decisions without a clear financial plan
Overlooking potential tax consequences
Investing too heavily in a single asset or market
Overcommitting to property or illiquid investments
Making decisions based solely on emotion, family pressure, or market speculation
Failing to update estate planning documents, insurance arrangements, or asset protection strategies
A Thoughtful Strategy Can Make a Lasting Difference
An inheritance, business profit, or financial windfall can provide a great opportunity to strengthen your financial future. However, achieving the best outcome often comes down to making informed decisions that align with your goals and circumstances.
A well-structured financial plan that is tailored to your circumstances can help provide clarity and while considering your objectives, tax efficiency, investment growth, and long-term financial security.
The decisions you make today can have a lasting impact on your future wealth. Before investing or transferring a significant sum of money, speak with a qualified financial adviser who can help you build a strategy tailored to your goals and circumstances.
Disclaimer: This article provides general information only and does not constitute financial or tax advice. Always seek personalised advice from a qualified professional before implementing any investment strategy.