Kiplinger’s Personal Finance — September 2017

34 KIPLINGER’S PERSONAL FINANCE^ 09/2017

MONEY

won’t earn much interest, but you’ll

give yourself time to assemble a finan-

cial team and come up with a long-

term plan. If you need help resisting

the urge to splurge, plug “celebrities

and bankruptcy” (or “pro athletes and

bankruptcy”) into a search engine for

some cautionary tales of how quickly

millions of dollars can disappear.

Set your priorities. Your financial team

should include a certified financial

planner, a certified public accountant

or enrolled agent, an attorney and,

depending on the circumstances, an

insurance professional. Work with

your team to create a priority list for

your money, says Ashley Bleckner, a

CFP in Newport Beach, Calif. If you

have credit card balances or other

high-cost debts, those should top the

list because you’ll get an immediate

return of up to 15% or more by paying

them off. Next, consider maxing out

your retirement savings accounts, if

you aren’t doing it already. James

Shagawat, a CFP in Clifton, N.J., asks

clients to write down immediate, one-

year and five-year goals. “This may be

your only windfall, so we’ve got to

make it last a lifetime,” says Shagawat.

With the bull market approaching its

ninth year, investing in the stock mar-

ket may be unnerving. But as we noted

above, stocks (and stock mutual funds)

have historically recorded the highest

rate of long-term growth. And you

don’t need to shoot out the lights: A

$292,000 investment that earns an 8%

average annual return would be worth

more than $1.4 million in 20 years.

If the idea of investing your entire

windfall has you reaching for the

nearest antacid, especially with the

market at its current lofty levels, con-

sider dollar-cost averaging. With this

strategy, you invest a given amount on

a regular schedule. Your fixed amount

of dollars will buy more shares when

prices are low and fewer when prices

are high. And if the market turns up-

side down, you’ll have some money on

the sidelines, which you can use to buy

stocks at a discount. ■

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a modest windfall at some point in

your life, and with proper planning,

you can transform that bequest into

a million-dollar nest egg.

Two-thirds of baby boomers will

receive an inheritance, according to

the Center for Retirement Research

at Boston College. The median amount

is $64,000; the average inheritance

(which ref lects bequests from wealth-

ier parents) is $292,000. Other sources

of windfalls include insurance payouts,

stock options, the sale of a business

and, occasionally, lottery winnings.

Managing a windfall is a problem

we’d all love to have, but it can be

stressful. Family members and dubi-

ous friends will no doubt have plenty

of suggestions for how to invest your

money. You may be tempted to splurge

on a big-ticket item you’ve never been

able to afford. That’s why the most

important first step you can take is

to “hit the pause button,” says Mark

Beaver, a certified financial planner

in Dublin, Ohio. Inherited IRAs have

rules of their own, but for other kinds

of windfalls it makes sense to stash the

money in a safe place, such as a bank

account or money market fund. You

your toe into investing, you could “buy

your second home first,” says Justin

Gramm, an exclusive buyer’s agent in

San Diego. That means choosing an

attractive neighborhood and a home

comfortably within your budget that

you don’t intend to stay in forever.

Hang on to the home as a rental prop-

erty once you buy a new place; you’ll

be an expert on the neighborhood.

More-experienced buyers with

enough equity in their homes can take

out a home-equity line of credit and

borrow from it to buy a property. The

downside: Your own home is on the

line as collateral. If you choose this

route, “do your homework,” says Cotty

Lowry, a real estate agent in Minne-

apolis. That means studying the cost

of similar rentals in the area you’re

targeting and the strength of the

rental market so you can anticipate

your monthly income. Be sure you

have the funds to absorb extra ex-

penses, whether that means covering

your tenants’ utilities, repainting the

walls or dealing with vacancies. Speak

with a loan officer to calculate your

mortgage payments and closing costs.

Harb also advises those who are

shopping around to develop a “net-

work of resources,” including a real

estate agent and mortgage broker,

whom you could call in a f lash when

you find a property you want—espe-

cially in competitive markets. The

effort pays off. “Aside from opening

my own business, the best investments

I’ve ever made have been real estate,”

he says. In Silicon Valley, people asso-

ciate wealth with careers at compa-

nies such as Google or Facebook, or

speculative tech stocks. “But to me

that’s all noise,” says Harb. “Buy some

land.” MIRIAM CROSS

Maximize a Windfall

The odds that you’ll win the Powerball

jackpot are about one in 292 million,

and stories about people receiving huge

inheritances from eccentric relatives

are usually the stuff of fiction. But

there’s a good chance you’ll receive

MOVING ON UP

Millionaire Households

The number of U.S. households with

a net worth between $1 million and

$5 million has steadily increased as

the stock market has recovered from

the 2007–09 bear market.

SOURCE: Spectrem Group

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