How Should I Invest My Inheritance Money?

An inheritance often comes at the most challenging time in life. A loved one has passed away, leaving their life savings, remaining retirement funds or maybe even a property to you. If the death was sudden, figuring out how to best invest this money can be difficult. During a time of grief, you might be left wondering: “Where should I invest my inheritance money?”

Consulting firm Accenture conducted a study and predicts that “Generations X and Y will take a greater wealth transfer from the baby boomers, in time,” reports the New York Times. Households with $500,000 in net worth or less are expected by the year 2031 to give $3 trillion to their heirs. And households with more than $500,000 in net worth, four times that much in wealth will be transferred.

But the amount of your inheritance might vary. An inheritance does not have a threshold for great wealth. It could be a large amount, such as $100,000, or it might be a smaller amount, such as $10,000. In every case, it’s important to invest the money wisely so that you don’t make costly mistakes, such as losing the money on a risky investment.

Questions to Answer Before Investing Your Inheritance

Investing your inheritance money is not only a matter of where to put the money and for how long — it’s also important to consider your personal financial situation, future goals and needs before making a decision.

The first thing you should do before investing your inheritance is evaluate your own financial picture. Ask yourself these important financial questions before doing anything with the money:

• Are my debts paid off?
• Should I save the money for an emergency?
• Do I need to start saving for my kids’ college education?
• Do I have enough money saved for retirement?

Next, gather the right support team. Having professional guidance is essential to investing your inheritance wisely. Look at financial advisors or financial planners, probate attorneys and perhaps even a real estate planning attorney. Stockbrokers can also help you if you plan to invest the money in the stock market.

Related: Your Cheat Sheet to Financial Professionals

Best Ways to Invest Inheritance Money

After you figure out your financial picture and goals, it’s time to pick an investment product that can help grow your money. Here are a few of the best ways you can invest your inheritance money:

1. Certificates of Deposit (CDs)

At face value, a certificate of deposit (CD) might seem like an ultra-conservative and safe investing vehicle for your inheritance. And they are, since the funds in a CD are usually protected by the Federal Deposit Insurance Corporation (FDIC).

Also, CDs today typically offer interest rates on your money when you store it in an account for a specified period of time. Money can be invested in a CD for as short as a few months or up to several years — or even longer. While placing the money in a CD will typically not earn a lot of interest, it will secure your money in a safe, low-risk place and buy you additional time to consider long-term investing options.

2. Money Market Savings Account

Another conservative approach is to place the inheritance money in an interest-bearing savings account, called a money market savings account. With this type of account, you will typically earn a higher interest rate than a traditional savings account or short-term CD, and you will make a higher initial deposit. Also, unlike a CD or savings account, you can write checks on the balance. So, this money could be used for a financial emergency or to fund home repairs.

Similar to a CD and savings accounts, this type of account is usually insured by the FDIC, meaning your money will stay safe and experience very low risk.

Read: 7 Best Short-Term Investment Options

3. Mutual Funds

A financial advisor or stockbroker can help you determine which mutual funds you should invest your money in. With mutual funds, your money is invested in stocks, bonds or other assets through a company that pools money from other investors as well.

A mutual fund can be a good option for your inheritance if you want to diversify your portfolio and experience less risk. Additionally, you will typically earn more income on mutual funds than CDs and savings accounts.

4. 529 College Savings Plan

Do you have children or grandchildren? If so, you might consider using the inheritance money to fund a college savings plan for them. This is a loving way to honor your family member and a way to invest in future family members.

A financial planner can help you find the best investment plan based on estimated cost of tuition, the child’s age and other factors. Your risk will vary depending on the 529 plan you pick.

5. Real Estate

Investing your inheritance money in real estate is another viable option. If you purchase a house or rental property in the right area, you could experience a profit. Working closely with a real estate agent who intimately knows the area and your financial goals is essential, however. As history has proven, investing in real estate can be pretty risky, especially if you’re not prepared.

Keep reading: 31 Things to Know About Investing Your Money

This article originally appeared on GOBankingRates.com: How Should I Invest My Inheritance Money?

This article by Holly Hammersmith first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.