Personal Finance

I just inherited $1 million worth of a single stock - what should my first investment move be?

Joey Frenette

Published: December 3, 2024 12:26 pm

It’s seldom a good idea to put your eggs in one basket, especially if you’re poised to inherit shares of a company that you may not be familiar with. Undoubtedly, even if you’re a new investor, it’s just prudent practice to sell shares and take a tax hit so that you can diversify your portfolio to avoid single-stock risk, something that could really sink one’s portfolio in an irrecoverable fashion.

In this piece, we’ll check in on a Reddit user who recently inherited a cool $1 million sum invested in shares of a single company. Indeed, investing heavily in one stock may be the way to go if one understands the risks and still believes in the long-term growth runway as well as the current valuation.

That said, for an heir of such a portfolio, I’d argue that it really doesn’t make all too much sense not to sell at least a portion of the proceeds. You don’t need to liquidate the position unless, of course, you really want to. Either way, putting one’s eggs across multiple baskets, I believe, is the move that many financial advisers would suggest. Of course, if you find yourself inheriting a substantial sum invested in securities, you should hire a wealth planner to answer all your questions.

Key Points About This Article

• By inheriting $1 million in stock, one is also inheriting the single-stock risk.
• Selling a portion to diversify is a must unless they’re already heavily invested and diversified elsewhere.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

In the case of this Reddit poster, they’re looking to invest in some of the top mega-cap tech titans (most notably those within the Magnificent Seven cohort) as well as pursuing a high-yield savings account (HYSA). I think both are fine options that can help the person not only grow their wealth but avoid potential pitfalls that could cause their inherited sum to go up in a poof of smoke.

First move: Hit the sell button on a portion of the single stock. Second move: Diversify into an index fund

Additionally, I’d suggest diversifying across sectors rather than going all-in on technology. Sure, the Magnificent Seven are magnificent and all. However, I do believe that in the event of a tech-centric market crash, they’d be at risk of taking a far larger hit than the rest of the market. Indeed, picking and choosing your own stocks can be a winning idea, especially with the names with track records of topping market performance. However, in this case, a total market index fund of some sort may be the best place to park cash of proceeds sold from the one big inherited position. 

If the poster is keen on betting big on the Magnificent Seven stocks, though, it makes sense to allocate a portion to them as long as they’re staying diversified across industries and sectors, especially as market valuations soar, reminding some of the run-up that preceded the dot-com crash. I have no idea if the AI revolution will have its own painful meltdown.

Though valuations are a tad stretched today, especially in some of the Magnificent Seven, I’d argue we’re far from a bubble bust. But that doesn’t mean the stocks can’t suffer lackluster results in a bear market that kicks in at some point over the next decade. Indeed, it has been a while since we’ve felt the pains of a market correction.

The bottom line

Though we could go another year without having one, I still think investors should always be ready to deal with one since they happen once per year (actually, just under a year) on average. Either way, I think any heir should have diversification at the top of their mind. And there’s no better way to ensure you’re diversified than by asking for the opinion of an adviser.