If you’ve inherited £100,000, here’s the short version: clear any expensive debt, keep enough cash to sleep at night, and invest the rest in a low-cost index fund inside an ISA and a pension. That’s it. The rest of this article is why that’s the answer — and why almost everything else you’ll be offered is worse.
I should say up front what I’m not. I’m not a financial adviser, and I’m not trying to become yours. Search this question and you’ll find two things: forum threads, and firms who’d like to manage your £100,000 for a percentage of it every year, forever. I fired mine years ago. This is the article I wish someone had handed me.
First: do nothing for a while
An inheritance usually arrives with grief attached. Decisions made in the first weeks are rarely the best ones, and there is no deadline. Park the money and let it sit.
One thing worth knowing while it sits: money from an inheritance gets special protection. The usual FSCS limit on bank deposits is £120,000, but a “temporary high balance” from an inheritance is protected up to £1.4 million for six months. So the money can sit in one account, fully protected, while you think. Six months is plenty.
Should I pay off debt first?
Any debt costing more than about 6% — credit cards, car finance, personal loans — pay it off. It’s the only guaranteed return you’ll ever get. The mortgage is a judgement call: paying off a 4% mortgage is a decent, safe use of money, but historically the stock market has returned around 10% a year. I’d rather own more of the market than less of my mortgage, but nobody ever regretted being debt-free.
Should I invest it all at once or drip it in?
The maths says all at once. Vanguard studied this across decades of market history: investing a lump sum immediately beat drip-feeding it in roughly two-thirds of the time, because markets rise more often than they fall, and money on the sidelines misses that.
But the maths isn’t the whole answer. If investing £100,000 on a Tuesday and watching it wobble would have you selling in a panic the first bad month, drip it in over six or twelve months instead. A slightly worse expected return you can actually live with beats a perfect one you abandon.
What should I actually invest in?
The same thing I’d say for £100 a month: a low-cost index fund that owns the whole market. Not the “inheritance portfolio” an adviser will build you, which is usually the same thing with a 1.5% annual fee wrapped round it.
Use the wrappers in this order: fill your £20,000 ISA allowance now, again next April, and consider a pension contribution — the government adds 25% before you’ve done anything. The rest goes in an ordinary investment account and migrates into the ISA each year.
What difference does it actually make?
Here’s the number that should decide this. £100,000 left in a savings account at 4% becomes about £219,000 in twenty years. The same money in the market averaging 10% a year — the S&P 500’s long-run figure, though never a smooth ride — becomes about £673,000.
The gap is roughly £450,000. The inheritance is £100,000. The decision is worth four and a half times that.
Someone left you this money once. What you do next decides what it turns into.
This is what I write about every week — managing your own money in plain English, without paying someone 1.5% a year to do it worse. The letter is free.
I am not a financial adviser. Nothing here is personal financial advice. This is my own experience and opinion, shared for information and education. Investing involves risk — the value of investments can fall as well as rise, and you may get back less than you put in. Please do your own research before acting.