DEALING WITH AN INHERITANCE

Q: I recently inherited what to me is a large sum of money. I've been surprised by several things. First, I feel stressed out about it. Second, I've become paranoid that everyone I know who is short of cash will hit me up for a loan. Lastly, I feel frozen with inaction. I don't know what to do with the money.

Maybe it would ease the stress to take a minivacation to clear my mind. But, then I think I should give it all to a money manager and let him worry about it or put it into some sort of tax-free shelter.

What should I do?

A: Money carries a lot of meaning and symbolism for most of us. Take the time to consider what emotions are attached to your money.

People who inherit money might feel guilty or might notice an extra burden of responsibility since the money came to them "without working for it." While technically that is true, remember that the person who had the money chose you to receive it.

Stress accompanies coming into a lot of money quickly also because it's a big change. If you've never had to deal with a large sum of money, you likely will be dealing with some financial questions and issues for the first time.

As for your concern about people wanting to borrow from you, show discretion in who you tell about your inheritance. Of those who do know of your inheritance and who ask for a loan, one simple solution is to say that you value your relationship too much to jeopardize it by entering into such a financial transaction.

For now, put the money in a good money market fund, and take time to educate yourself.

Often, people with a chunk of money feel as though they are missing out by not quickly selecting investments. Rushing into some investment you don't understand or that a salesperson is pitching is likely to lead to future regret.

So take your time. Remember that earning 5 percent in a money fund is better than throwing money into something that will go down the tubes.

Even if you're going to hire someone to help you, you need to know the jargon and concepts. Otherwise, how will you know if you're getting bad advice?

Also, step back and reflect on your goals. A chunk of money can help you accomplish what you might not otherwise would have been able to do for sometime -- such as buying a home or cutting back on work to spend more time with your family.

Once you get a clearer picture of your goals, then and only then should you consider what investments could help you achieve them.

For example, if you earmark the bulk of the inheritance for your retirement, then you should invest more aggressively than if you plan to use the money for a home down payment in a couple of years.

Q: I recently read your "Mutual Funds for Dummies," book, the second edition, in which you suggest no-load mutual funds. Do you suggest mutual funds from load companies? My broker has made suggestions about setting up a Roth IRA and a Simple IRA. I don't know about these sorts of things so I see some value in advice don't you?

A: I don't recommend investing in load mutual funds unless an investor tells me he is set on working with a commission-based broker.

If you need advice about mutual funds, you are better off paying an hourly fee to a counselor and then buying no-load fund shares.

I do possibly see value in your broker's recommendations, but if you are not educated about money, how can you possibly know if you are making sound decisions?

If you want advice, it is less costly and more objective to get it from a counselor who charges an hourly fee. An even better course would be to educate yourself.

Write Eric Tyson, author of the best sellers "Investing for Dummies" and "Personal Finance for Dummies" (IDG Books), in care of King Features, 235 E. 45th St., New York, NY 10017, or e-mail: eric@erictyson.com.

© 2000 Eric Tyson