9 Things To Do With Your Inheritance Money In Singapore
To invest the money or donate? If you’re on the receiving end of an inheritance here are 9 prudent things you can do with the money
An inheritance in Singapore can come in many different forms — cash, stocks, property or even insurance plans. Regardless of which form this inheritance takes, as the recipient, you’ll want to make sure the efforts of your elders to amass this wealth don’t go to waste.
Here are 9 of the most prudent things you can do if you receive an inheritance, particularly if it’s in cash.
It’s going to take time for you to decide what to do with such a large amount of money. Hence, the first course of action would be to deposit the money in a savings account — specifically, a priority banking account.
Why a priority banking account? It is typically reserved for individuals with at least S$200,000 in assets or more. With your inheritance, you can get access to this exclusive account, which also comes with numerous additional investment, savings and lifestyle perks.
These perks can include:
A dedicated Relationship Manager (sometimes known as Wealth Manager)
Special event invites
Complimentary golf games
Exclusive investment opportunities
Top-notch service (without queues) when you head down to the bank branch
Alternatively, you can also deposit this sum of money in other savings accounts, or liquid investments with lower risk, such as money market funds.
The best way to make your inheritance grow from something substantial into long-term wealth is to invest it.
There are many different asset classes for you to choose from, including:
Stocks: One of the most traditional ways of investing, you can use the money to purchase shares of a company for capital growth or dividend yield.
Exchange Traded Funds (ETFs): ETFs are traded on stock exchanges and offer greater diversity as you’re investing in a fund that pools together dozens of different stocks, usually to mimic the performance of an index.
Bonds: An asset class with low risk, but also lower returns, bonds (also known as fixed income) require a principal investment in return for coupon payouts periodically.
Cryptocurrency: A high risk, high returns type of investment, it’s wise to keep this allocation in your portfolio small.
If you’re unsure where to start looking when it comes to investing, you can instead turn to robo-advisors. Robo-advisors offer diversified portfolios that are based on your risk appetite and investment preferences.
However, if this inheritance is an extremely large sum of money, you can instead tap on the support of a wealth manager (also known as relationship manager). This typically requires a priority or private banking relationship. A wealth manager will not only be able to manage and advise on your portfolio, but also offer exclusive or tailor-made investment products that aren’t available to the retail market.
But, what if the inheritance consists of stocks?
You can either continue to hold it, or sell it for cash. This would require you to dive into the valuation of the stock, its dividends as well as the amount of money it’s worth.
Before selling the stocks, you should also have plans for what you would do with the money, otherwise you’d bear the opportunity cost of having the money sit idle in your everyday savings account.
To sell the stocks, or to use the cash to buy other stocks, you’ll need a brokerage account.
If you’ve taken a loan with a relatively high interest rate, such as 5% p.a. or more, it’s best to pay off the loan with the spare cash that you now have.
High-interest rate loans, such as personal loans, are costly in the long run as you’ll be forking out a hefty sum in interest rate costs. These loans also bog you down from starting on your investment journey, incurring a fair bit of opportunity cost. By paying off these loans, you reduce the amount you pay in interest, while also allowing yourself to start investing on a clean slate.
However, you should also keep in mind that not all loans are bad loans.
For example, home loans typically have low interest rates that range from 1.3% to 2.6% p.a. — comparable to what we earn in our CPF Ordinary Account. The sum borrowed for home loans is also a large(because property in Singapore is hardly cheap), so you could be better off repaying the home loan while utilising the money to make investments that can reap higher returns.
With a hefty inheritance sum, you could purchase a new property. This could be a HDB or private property, and you could go one step further to narrow down your search to freehold properties, or properties with a 999-year lease.
A new property could mean a new house to live in, an additional property as a form of investment (property appreciation), or as a source of passive income (rental income).
If you inherit a property, you can similarly choose to live in it, sell it off for a lump sum, or to rent it out for monthly income.
Having insurance that adequately covers your needs is an aspect of financial wellness that should not be overlooked. With a sizable inheritance, you can no longer say that you can’t afford higher insurance coverage.
This means ensuring that you have the insurance plans you need, such as health insurance, life insurance and critical illness insurance all covered. You could also consider bolstering your portfolio with personal accident insurance, cancer insurance and other types of single premium insurance plans depending on your needs.
On the topic of insurance, you could also opt to purchase an endowment plan if you’re looking to grow a pot of money at low risk.
An endowment plan is a savings plan that requires you to pay a single or annual premium, in return for a lump sum amount at the end of the policy term. This policy term can range from shorter terms of two to five years, to longer terms of 10 to 25 years.
An endowment plan comes with low risk, with some plans guaranteeing at least your capital at maturity. However, they are a relatively illiquid form of investment as withdrawals before the maturity period could impact your initial capital.
Hence, this makes endowment plans a better savings tool for longer-term milestones such as your child’s education, your retirement or your house downpayment.
If you’re close to retirement or starting to plan for your retirement, you could consider purchasing an annuity plan.
An annuity plan can supplement your CPF LIFE payouts, by giving you an additional monthly payout for your lifetime, or for a fixed number of years. You’d just have to pay a single one-time premium, or a monthly premium for the annuity plan. This additional monthly payout can help to cover for your lifestyle expenses during your retirement years, especially if your CPF LIFE payouts are insufficient.
If you have plans to invest the inheritance money, you can also consider opening a Supplementary Retirement Scheme (SRS) account.
The SRS is a voluntary scheme that encourages you to invest and prepare for your retirement. Your SRS contributions are eligible for tax relief and these funds can be used to invest in a variety of products, including stocks, bonds, ETFs, unit trusts and more.
However, do keep in mind that unlike investing directly in investment products with cash, your SRS money can only be withdrawn when you reach the official retirement age in Singapore.