Questions such as the following should be answered before you decide how much and where to invest:
• Do you have adequate disability/life insurance?
• Do you have adequate liability coverage?
• Should you invest in a Roth or a traditional IRA?
• Should you increase your contributions to your employer-sponsored retirement plan, and use some of your inheritance to make up for the resulting reduced cash flow?
• Are there current debts or future major expenses that should be addressed before investing?
• Do you need to set aside any money for college?
• Is your estate plan up-to-date?
Even though you are young, investing aggressively may not be the right choice. If you begin with $100,000 and lose 30 percent that first year, it will take almost four years with a 10 percent rate of return just to get your account back to $100,000. If you continue to achieve a 10 percent rate of return for the next five years, your account will be worth a little more than $160,000. If you only lost 10 percent in year one of investing, you would attain the same account balance with a 6.6 percent rate of return over the next nine years. The classic children’s fable “The Tortoise and the Hare” teaches that slow and steady can win the race; this philosophy can also apply to investing.