What to do with inheritance?

You will probably find it to be a good idea to engage an investment consultant, but be very careful who you choose for that position, and don't believe for a moment that you no longer need to research the stocks, bonds, etc., in which you invest.

Investment consultants are just as human as you, and are just as capable of making mistakes or suffer errors in judgement. Also, like all of us, they tend to have their own opinions, and you will see their opinions reflected in the offerings in which they urge you to participate.

If their opinion is incorrect and the offering loses money, the money lost is yours, not the investment consultant. In point of fact, the investment consultant will make his/her commission regardless. They earn their commission each time you execute a transaction - buy, sell - no matter. Their commission comes to them in either event.

The first thing you want to do is diversify; i.e., invest small to moderate amounts in a variety of stocks, bonds, etc. in different areas of operation. The old addage about not putting all your eggs in one basket is expressly appropriate here. You don't want to invest all your funds in one arena, because if that particular market should fall out, voila, you are a pauper.

On the other hand, if your investments are spread over a wide range of arenas, if one bottoms out you will have the others to keep your head above water.

As you begin to look at different investment opportunities [and trust me, the moment you have a large amount of money available for investing, opportunities for investing will present themselves as if they were crawling out of the woodwork], you should first and foremost insure your own financial security by placing a portion of your investment funds in very safe and stable stocks, bonds, mutual funds, etc.

I'm not familiar with the opportunities of this type offered in the U.K., but here in the U.S. the Government offers savings bonds and mutual funds in which the private citizen can participate.

Typically, these offerings earn a lower percentage of Return On Investment [ROI] than those offered by private companies; but they are guaranteed by the government - so as long as the government is still in existence, you are assured of a steady though smaller yearly yield.

Using the U.S. example of Government Savings Bonds, they typically have a twenty year maturity and earn somewhere in the neighborhood of five percent per year. Thus, your investment will double in the twenty years it takes to mature. Five percent per year may seem to be a trivial ROI, but it is a "sure thing".

Once you are assured that you have an investment package with a ROI which will provide for your needs for the rest of your life, you can then take another portion of your investment budget and invest in public stock offerings and mutual funds which show a higher [and sometimes much higher] ROI, and consequently higher level of risk.

When you begin to dabble in this arena, it is vital that you do your research. This is doubly true if you have engaged an investment counselor. While the ROI on this type of investment can be enormous - sometimes thirty percent per year or more, the downside on this type of investment is that it carries more risk than the safer government bonds.

The reason this type of investment is more risky is that private companies are subject to the vagaries of fate ... the company may go bankrupt, in which case your investment evaporates into nothingness.

That, of course, would be the worst case scenario. The company issuing the stock might have any number of situations occur which will reduce the yearly company earnings, and the reduced earnings will reduce the value of your investment.

This is one of the reasons it is so important to do your research. Before investing any substantial amount in the stock of a company, you should review its performance for as far back as you can; a minimum of three to five years.

While researching a particular stock offering, you may find that the ROI was fifteen to twenty percent for the past two years, but that it only earned five percent the year before that, and that it lost fifty percent the year before that. If you research the company diligently, you can usually determine what caused the poor performance, and what you can expect to be the normal return per year.

For instance, it may be that the value of the stock lost the fifty percent because a lawsuit award necessitated an enormous cash payout, or because it was necessary for the company to expend large portions of its budget to update obsolete equipment.

In this example the cause of the poor performance that year is clear, but after the cash award is paid or the obsolete equipment has been updated, you can reasonably expect that there will not be a repeat of the loss any time in the near future. In fact the company may now see large increases in it's business volume because it now possesses up-to-date equipment and can execute its operations more efficiently. These increases in business volume would be reflected in the dividend paid to the stockholders each year.

Alternatively, you may find that the reason for the large loss that year was because the company's Chief Financial Officer diverted several million pounds from the company retirement fund account, and had disappeared immediately thereafter.

In the second example, you might find that not only was the Chief Financial Officer the culprit responsible for the loss of company funds, but also that his brother had been appointed to take his place as Chief Financial Officer when the culprit suddenly moved to Argentina.

If this were the case, I would not feel at all confident that the same behavior might not be expected from the new Chief Financial Officer. Appointing the brother of the person responsible for such a significant loss to the company to a position of such authority would indicate to me that perhaps the decision makers in the company were less than capable of making the hard management decisions necessary to keep a company viable.

If it should happen to turn out that the new Chief Financial Officer had plans to meet his brother in Argentina in a year or two, a second occurence of such a loss could well put the company out of business and turn the value of your pretty stock certificates into fancy wallpaper.

You will also find that as soon as you have funds to invest, everyone and their brother is going to have an opinion on just where you should invest, and will for some reason believe they have the right to advise you of the opportunity. They will even expend a significant amount of energy attempting to convince you that they are correct. I recommend that you listen to such people [because I believe you will find it very hard to avoid listening to them], but I also recommend that you thoroughly research the recommendation before acting on it.

With that being said, I'll now throw in my own personal recommendation. At the moment there is a stock available which has a performance record unequalled in the history of the stock market. It has not only outperformed every other stock on the market, it has outperformed the other offerings on the market by a staggering margin. It also shows no signs of slowing in the near future, and the company in question has been diversifying its own holdings most shrewdly in a manner which not only has provided for increased revenues for the company, but has filled niches created by the parent company. The stock offering to which I refer is E-Bay.

I am not recommending that you invest any of your funds in E-Bay stock. What I DO highly recommend is that you use E-Bay as your first foray into the researching of possible stock purchases, and then make your own decision based upon your findings.

I hope this has been of some use to you. Good luck and good fortune with your inheritance. Or, as Spock would say <Grin> "Live long and prosper". I offer my condolences to you that your good fortune should come to you at the cost of losing your father.