Most people would be envious of your position, but is this unexpected gift causing you stress instead?
It is certainly not an easy thing to deal with if you are the only one in your family receiving this gift and there is no one around to provide you with proper guidance. Furthermore, this is always going to be a sensitive topic to be discussed openly with family and friends.
Many beneficiaries like yourself are well-meaning. They shared with us that they have no intention of squandering the gift. In fact, they know that it is not their money to begin with and they want to steward the money well.
A few of my clients are on the receiving end of unexpected inheritances and today, I would like to share one case study with you. By sharing, I hope to shed some light about the inner thoughts and struggles of a well-meaning beneficiary. After reading this, you will find that you are not alone on this journey, and I hope it can help you on your financial journey ahead.
Client – Brandon (the name has been changed to protect the client’s privacy)
Brandon became the unexpected beneficiary of an inheritance in his mid-30s.
His paternal grandfather passed away and a certain portion of his grandfather’s estate was initially meant for his father. However, Brandon’s father unfortunately passed on before his grandfather. Hence, his father’s share of the inheritance of about S$1 million was handed to him instead.
Brandon had a humble and middle-income upbringing. Prior to this gifting, there was little need to learn about how to better manage money. Just like many of us when we first started on our financial journey, he purchased insurance policies for both protection and savings purposes.
After receiving the inheritance, Brandon felt that he must be more deliberate in managing his finances. As the large sum of money sat idly in his bank account, he ferociously sought and consumed all the contents with regards to personal finance, especially on investment, hoping that it would bridge his financial knowledge gap.
During our various conversations, Brandon shared with me his struggles while trying to upskill and manage his wealth better:
- Brandon felt that the money was not his to begin with. He felt a strong responsibility to ensure that he can grow the money wisely to do justice to his grandfather’s hard-earned money and to him, it is imperative not to lose the money.
- Brandon was frequently contacted by financial salespeople. They were recommending him various products that they deem to suit his needs. To some, this newly found attention may be flattering but given Brandon’s upbringing and low-key personality, he felt extremely disturbed.
- It was very difficult for Brandon to find someone to entrust the money with at such a short span of time. At the same time, the longer he takes to act, the more guilty he feels about not putting good use to the money bestowed to him.
After months of research, he realised that the solution to his problem was not about buying specific financial products.
He learnt about Providend and was curious about our holistic approach towards wealth management. Truth to be told, he found it awkward to approach us initially. He felt that he is a simple man with simple needs. How complicated can his situation be that he would require such an advisory service?
Your Goals May Be Simple, but Winning the Financial Battle Requires a Well-Thought-Out Plan
Our approach has always been to listen to what Brandon has to share about his life and the life goals he wishes to achieve. Brandon has three financial goals on the top of his mind:
- Fund his future children’s tertiary education
- Ensure that his retirement is taken care of
- Aspire to upgrade from his current HDB flat to a condominium in 5-years’ time
To fund these goals, Brandon needs to efficiently allocate his current investable assets, as well as the surplus from his earned income.
From my observations, his annual surplus from work is not in the healthiest state. This is due to his existing insurance commitments and when I presented this and discussed with Brandon, he too felt a little uneasy about his cash flow status.
As he plans to start a family in the next few years, he expects his spending to go up over time. How can he juggle these nearer-term financial commitments with the longer-term financial & life goals?
As Providend serves more millennial and generation X clients, I notice certain traits that a fair number of them exhibit. While their wealth may go up dramatically, and we would usually classify them under the high-net-worth category, the wealth they have accumulated do not change their identity and values. They feel that their lives remain rather simple.
Carl Richards, a certified financial planner and author of “The Behaviour Gap” once remarked that every three years, majority of his clients will experience some financial or life events that require him to realign their wealth plan.
Brandon might think that his needs are simple, but his wealth plan requires some finesse.
His inheritance would play a major role in funding his financial goals. Although S$1 million is a substantial amount, he would still have to allocate them well. He can have anything he wants, but not everything.
I created a few scenarios with a focus on his various top priorities for him to decide. In his case, children’s education will take a backseat for the time being until they are born. The focus now would be to set aside the down-payment for the property upgrading and saving toward his retirement.
To future-proof his financial health, I took a hard look with him on the potential of his income growth and current expenses. After a few rounds of extensive discussion, he decided to give himself more room to breathe by letting go of a few insurance savings products which had broken even. Having a large part of the inheritance being invested long term for his retirement had empowered him to make such difficult decision.
Dealing with the Emotional Aspect of Investing a Large Lump Sum of Money
If you are new to investing, it can be a stressful endeavour. Most of his peers who are accumulating towards their retirement have the privilege to build up investing experience slowly as their wealth grows. Brandon does not have this privilege.
Investing is new to him, and his deep sense of responsibility for the inheritance told him that he cannot afford to make mistakes. He had to come to terms with ways to deploy his sudden wealth, which forms most of his net worth. One can only imagine the level of his anxiety.
Rationally in his head, he knew that he had to put the money to work. Through our financial education, Brandon understood that generally the stock markets go up over the long run. He also has a long time horizon and while there is near-term market volatility, these down periods shall pass.
In his heart, dealing with market volatility is much tougher.
To his credit, Brandon eventually kickstarted his investment journey by tranching in his capital over a few months.
The real test for both of us came during the February-March 2020 COVID period. That was the first challenge that Brandon had to deal with.
Not everyone can stomach a 30% drawdown in the market, let alone someone who was still allocating a large sum of money into his investment portfolio. We were immensely proud that Brandon was able to maintain his temperament and composure. He even brought forward some of his tranches when the market came down during the March 2020 crash!
Taking Care of His Estate
While Brandon had his wealth plan up and his investment portfolios implemented, the work did not stop there for us.
It continues as I consistently remind Brandon to start thinking about his estate distribution in the event of his premature demise. We advised him to write his will, settle his CPF nomination or set up his Lasting Power of Attorney.
Regular Review of His Financial Plan to Affirm and Re-Align His Life Goals, if Necessary
We believe that life will eventually bring about changes.
The wealth plan we designed for Brandon can be seen as the first iteration.
His life may change in ways we cannot anticipate now. His priority towards children’s tertiary education may change once he becomes a father. As a couple, they may change their views on housing, desired retirement lifestyle and timeline.
Brandon and I check in with each other once a year. We touch base with one another, find out how his family is doing and most importantly, whether there are any changes to his life goals.
If there is a major change, we adjust the wealth plan along the way, and if necessary, adjust the investment plan. By partnering him on his wealth journey, I look to create a meaningful relationship with him. To me, this is what true meaningful work looks like.
Does Brandon’s story speak to you? Let us know your thoughts. If you would like us to profile more of such case study, please reach out to us.
This is an original article written by Loh Yong Cheng, Lead of Advisory Team at Providend, Singapore’s Fee-Only Wealth Advisory Firm.
For more related resources, check out:
1. Complex vs Simple Wealth Solutions
2. Conversation With Clients One Year After the Crash
3. How Providend Helps Affluent Families Have a Good Investment Experience
We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current estate plan, investment portfolio, financial and/or retirement plan, make an appointment with us today.