‘Investing seems risky – why would I gamble my six-figure inheritance?’

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Dear Sam,

I recently inherited some money. It is a six-figure sum, so substantial.

I have already arranged my finances so I have a sustainable life plan and the inheritance is extra. I am only in my late 40s and the inheritance is enough to let me retire a few years earlier, but not enough to abandon my plan and go hiking.

I have never really bothered to look into investing until now. I have savings, a pension through work and I am paying off my mortgage at an accelerated rate. I feel safe and understand these choices.

When I look into investing, it seems I have to accept risk and pay fees and I end up with about the same return as savings interest.

Everyone seems to have a belief that investing is necessary and that just saving will not work, but in my experience, it has. I have more now than I did, and I can see that if I carry on saving and reducing debt, I will be able to afford my lifestyle without working.

If I invest my inheritance, it seems the ethical preferences I would want to insist on, coupled with the fact that I don’t feel able to tackle this subject without expert advice, means it costs me 2pc a year to own the investment – and there is no guarantee whatsoever that it will make enough to cover its costs.

Why do people do this? Please help me understand what I am missing here.

– Anonymous

Dear reader,

You have already done something many people struggle to do: built a financial plan that appears to support the life you want.

Your inheritance may bring retirement closer, but you are not under pressure to put the money to work. There is no rule that says every pound must be invested and you do not need to copy what “everyone else” does.

Still, I would ask how you reached the conclusion that investing leaves you with about the same amount as savings interest.

That may be right for a particular investment, over a particular period, after particular charges. It may also reflect a comparison that uses a recent savings rate but assumes investment costs and risk over many years. However, to compare fairly, you need the same time period, an allowance for inflation, all charges and taxes, and some thought about what happens when savings rates change.

There is a very human trap here. We all have confirmation bias: once we feel safer with one view, we tend to notice the evidence that supports it and overlook what might challenge it.

Cash feels familiar. An investment forecast can look uncertain and complicated. It is tempting to focus on the fees and possible losses, then compare them with the interest you can see reliably arriving in your savings account. That may feel like analysis, but unless you test the assumptions, including inflation, on both sides, it is not a fair comparison.

A useful challenge is to ask what evidence might change your mind. Have you looked at a diversified portfolio rather than an investment that seems to promise more than you need?

Seeking answers takes effort. You may decide it is not for you, but it is better to recognise that as a choice than mistake it for a conclusion proved by the sums.

Investing is not a magic route to wealth. It means owning assets, often shares in businesses, whose value and income can rise or fall. Investors accept uncertainty because, over time, they hope to share in the profits those businesses create.

History gives grounds for considering it: long-term research finds that equities have outperformed bonds, cash-like bills and inflation across countries with continuous records since 1900. However, that is evidence about the past, not a promise about your future. Markets can fall sharply and some investments disappoint.

Diversification is one way to manage that uncertainty. A portfolio spread across many companies, countries and types of asset does not remove risk, but it avoids making your future depend on one company or market. You can decide how much to invest, what proportion to keep in cash, and how much fluctuation you could live with. 

You are right to take fees seriously. If the total cost really is 2pc a year, that is £2,000 annually for every £100,000 invested, before allowing for how costs compound as time passes.

Ask for a clear breakdown of advice, platform and investment charges, what each pays for, and what service you will receive each year. An adviser should explain the recommendation in plain English, including why it suits you and what could go wrong.

If the cost feels disproportionate, ask whether a fixed-fee or one-off piece of advice is available. Do not assume a higher charge automatically means a more ethical or better investment.

I say this as a financial planner, and I know that can make me sound like one of the experts you suspect are expensive and unnecessary. Advice is not automatically worth paying for. Its value depends on whether it helps you make a better-informed decision, avoid costly mistakes and stick to a plan that fits your life. You are entitled to challenge the assumptions and the bill.

If you test the evidence and decide that cash, pension saving and paying down your mortgage best serve your plans, that is a valid choice.

But be honest with yourself about what the decision rests on. You may choose the familiarity of cash because you do not want to take investment risk or spend time learning about it. That is your choice. It is different from concluding that a balanced analysis proves investing cannot help you.

The inheritance gives you room to choose. Try not to let the comfort of a convincing story make the choice before you have seen the full picture.

All the best,

– Sam

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