Did you recently inherit a stock and bond portfolio? Feel uncertain about your next steps? Navigating new assets can be daunting both to new and seasoned investors.
Managing an inherited portfolio effectively means aligning it with your financial goals and risk tolerance. Imagine inheriting a large sum in a single stock; this poses a significant risk if not diversified. Diversifying your assets protects against market fluctuations and secures your financial future. For example, young people inheriting a bond or cash portfolio, suitable for a conservative older investor, might prefer to invest in the stock market for growth if they have a higher risk tolerance.
Navigating Market Volatility
If you’re considering significant expenditures, like purchasing a home or funding your retirement shortly, a volatile market could jeopardize those plans. It’s important to match your investment horizon with the appropriate risk level of your portfolio. Consider moving your assets to cash or more conservative investments anywhere from one to five years before you’ll need the funds.
Tax Implications
Tax implications, especially in cross-border inheritances, can significantly affect your investment decisions. For instance, Israel doesn’t recognize the U.S. “step-up in basis” at death. The step-up in basis is a tax provision that allows inherited assets to be revalued to their market price at the time of the owner’s death, potentially reducing capital gains taxes when the assets are sold. Without this benefit in Israel, heirs could face a substantial capital gains tax based on the original purchase price of the assets.
Suggested To-Do List
After receiving an inheritance, the first thing I suggest doing is… nothing. Usually there is no need to rush into hasty decisions. Take the time to explore your financial goals and risk tolerance. Then, meet with a financial professional and design an investment portfolio that best meets your needs. Bring a tax advisor into the picture to understand the tax ramifications of your investment decisions.
Inheriting stocks across borders can pose challenges, but if you know the potential stumbling points, you can make the best use of your inheritance. For personalized guidance, register for a free Cross-Border Financial Evaluation at profile-financial.com/call to explore how we can assist you.
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com. He is a licensed financial professional in the U.S. and Israel. Call (02) 624-2788 for consultation. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. Opinions expressed are those of the author and not the affiliate firms. Neither PRG nor its affiliates give tax or legal advice.
Published July 3, 2024.