Inheriting assets could require you to make important investment decisions quickly. And managing those assets may prove challenging,especially if you receive a substantial amount.

Start By Reducing Your Risk

Suppose you inherited a large amount consisting of one or two stocks. You,most likely, would want to reduce your exposure to market risk soon after taking possession of the securities by diversifying into other stocks and other investment types. To ensure a desirable mix of investment classesyou should review your overall asset allocation, and make your investment selections accordingly.

Tax issues also need to be considered. If you inherit both taxable assetsand assets in an individual retirement account or other tax sheltered plan, you would need to identify the distribution options available to you under the tax law. To extend the benefits of a tax shelter, you may want to drawon any taxable assets before tax-deferred assets.

Secure Your Financial Situation

Receiving an inheritance may allow you to improve your overall financial security by giving you the flexibility to: pay off or reduce existing debt, increase your retirement plan contributions, and build a larger cash reserve.

Seek Professional Advice

Depending on your financial experience and the amount of time you will have available to monitor your newly expanded portfolio, you may wish to seek professional tax or investment advice. Or your inherited assets maybe so substantial that professional help is essential. Regardless ofwhether or not you choose to seek professional advice, you will want to reconfirm or revise your previous objectives in light of your new financial circumstances.

Gauge Your Risk Tolerance

You may also want to re-evaluate your risk tolerance within the context of your long-term goals, your family responsibilities, and your other assets. You may elect to balance your inherited assets against theinvestment choices you have made for your other assets. If you areinvesting your inherited assets for long-term goals such as your children’s education or retirement, you may take an aggressive approach. Or, if yourother assets are invested aggressively, you may decide to balance that approach by selecting conservative funds for inherited assets.

Diversify Your Investment Choices

Diversifying your assets among a variety of investments will greatly reduce your overall risk. Also, be certain you carefully consider the timingfor investing insurance proceeds or other cash. Circumstances permitting,you may be able to invest gradually and lower the risk of committing your funds at a market peak.

(Alan Moore is a financial advisor of Legg Mason Wood Walker, Inc., adiversified securities brokerage and financial services firm that is a member of the New York Stock Exchange, Inc. and SIPC.)

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