Investing an inheritance

Dear Dr. Don,
My sister died and left me a substantial amount of life insurance (approximately $114,000) that is presently in an interest-bearing checking account. The current rate is around 2.1 percent. Any advice on if I should leave it there for easy access, or can I do anything else with it to help me in the future. -- Mary Map

Dear Mary,
I'm sorry for your loss. I always have mixed emotions when I hear someone is the beneficiary of an insurance policy because I realize that the windfall generally comes about because the beneficiary has lost a family member or friend.

You need to figure out what financial goals you have for this money and then invest it to best meet those goals. A good place to start is to set aside three to six months of living expenses in an emergency fund. Keep that money readily available by holding it in an interest-bearing checking account, money market mutual fund or other safe, liquid investment.

After that, you need to take a big-picture approach to investing the remaining funds. Where's the rest of your money invested? Do you own a home, have investments in tax-advantaged retirement accounts, bank accounts, certificates of deposit, brokerage accounts or mutual funds? It's all your money, so decide on how to invest the insurance funds by considering how the rest of your money is invested, too.

If you're in retirement or close to retirement, you'll want to be more conservative in your investing. In this situation, your portfolio doesn't have rebuilding years if your investment returns head south, so you're looking to protect both principal and purchasing power.

My best advice is for you to hire a fee-only financial planner on an hourly basis to work with you on how to invest this money. They'll help you look at the big picture and to define your financial goals. The National Association of Personal Financial Advisors can help you learn more about what a financial planner can do for you and to find a fee-only planner in your area.