The Best Way to Invest Inheritance and a Windfall - Shares, Funds or Paying a Mortgage?
Receiving an inheritance or an unexpected sum of money can be life-changing. We look at options to help you decide what to do with it.
Updated 30 September 2025
Receiving an inheritance or windfall is a blessing. It is also a responsibility. Our team is often asked, "what should I do with $20,000?" or "how should I invest a $250,000 inheritance?". We're not financial advisors - instead, this guide is designed to give you sensible ideas and help you decide what's best for your situation. We focus on using the money for long-term wealth creation, focusing on shares, funds and paying off/down a mortgage. What's right for you depends on your age and personal financial situation. This guide's purpose is to provide popular suggestions that allow you to consider a wide range of options.
It doesn't matter if you have a $10,000 or $10 million windfall. We believe the suggestions below will suit everyone from the most risk-taking to the most risk-avoiding New Zealander.
Our guide outlines options by age groups:
Know this first: Receiving an inheritance or windfall can be life-changing. It also brings a lot of pressure and uncertainty, and many people are unprepared. Use it effectively, and you can benefit for years to come, but many New Zealanders have squandered a once-in-a-lifetime opportunity and then regretted not having had a plan.
We look at three age groups below to help you decide what to do with the money. The information is general - the best use depends on your financial circumstances and your expected needs in the future.
Protecting Inheritance in a Relationship: Important Considerations
Receiving an inheritance or windfall is a blessing. It is also a responsibility. Our team is often asked, "what should I do with $20,000?" or "how should I invest a $250,000 inheritance?". We're not financial advisors - instead, this guide is designed to give you sensible ideas and help you decide what's best for your situation. We focus on using the money for long-term wealth creation, focusing on shares, funds and paying off/down a mortgage. What's right for you depends on your age and personal financial situation. This guide's purpose is to provide popular suggestions that allow you to consider a wide range of options.
It doesn't matter if you have a $10,000 or $10 million windfall. We believe the suggestions below will suit everyone from the most risk-taking to the most risk-avoiding New Zealander.
Our guide outlines options by age groups:
Know this first: Receiving an inheritance or windfall can be life-changing. It also brings a lot of pressure and uncertainty, and many people are unprepared. Use it effectively, and you can benefit for years to come, but many New Zealanders have squandered a once-in-a-lifetime opportunity and then regretted not having had a plan.
We look at three age groups below to help you decide what to do with the money. The information is general - the best use depends on your financial circumstances and your expected needs in the future.
Protecting Inheritance in a Relationship: Important Considerations
- In New Zealand, inheritance is not considered marital property under the Property (Relationships) Act, meaning it’s not automatically divided in a separation. However, if inheritance funds are used to pay down a mortgage or invested in a joint asset, they become shared property. Your partner may legally claim half of that shared asset in a relationship breakdown.
- To prevent this outcome, inheritance funds can be kept separate from jointly owned assets. Establishing a contracting-out agreement (commonly known as a “prenup” or “postnup”) can further ensure inheritance money remains solely yours. Without this agreement, the funds could become marital property, potentially risking half the value.
- Keeping the funds separate and consulting a lawyer about a contracting-out agreement is strongly advised for those looking to protect an inheritance.
MoneyHub Founder Christopher Walsh shares his views:
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"Firstly, and in the interests of full disclosure, I've never received an inheritance or a windfall, so I have no personal experience in waking up to an unexpected lump sum deposited into my bank account. Nonetheless, I believe that achieving the best outcome for said money comes down to being decisive with your investing and/or spending decisions.
This guide looks at popular options to help you make an informed decision on what's right for you. And remember, it's your money to do with what you want. That means looking after your interests first before helping others. I wish you the best on the journey - making smart decisions today will help you exponentially in the future". |
MoneyHub Founder Christopher Walsh
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Your investor guide to investing inheritance or a windfall is sponsored by our friends at Kernel, a leading New Zealand-based index fund manager and investment platform.
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Top Tip: Establishing an Emergency Fund First
Over half a million New Zealanders have no emergency funds per this Stuff.co.nz article. Adding to that, 300,000+ owe more than they own. The problem is simple - if you have surprise bills (car repairs, kids stuff, broken washing machine) and don't have room on a credit card or overdraft, paying for things gets expensive quickly.
We strongly suggest establishing an emergency fund with a portion of your inheritance or unexpected sum of money. A $2,000 fund is a starting point if you have a family, but at least $5,000 makes life even more secure before scaling it up. Generally, we believe that a good emergency fund should be at least 3 to 6 months of essential expenses.
Our guide to emergency funds has more details. Many MoneyHub users have had a positive experience by opening up a top-performing savings account operated by another bank that sits separately from their everyday account(s). By doing so, there is less temptation to use the money for non-emergencies - an 'out of sight, out of mind' setup reduces this risk.
Important: General Disclaimer
We strongly suggest establishing an emergency fund with a portion of your inheritance or unexpected sum of money. A $2,000 fund is a starting point if you have a family, but at least $5,000 makes life even more secure before scaling it up. Generally, we believe that a good emergency fund should be at least 3 to 6 months of essential expenses.
Our guide to emergency funds has more details. Many MoneyHub users have had a positive experience by opening up a top-performing savings account operated by another bank that sits separately from their everyday account(s). By doing so, there is less temptation to use the money for non-emergencies - an 'out of sight, out of mind' setup reduces this risk.
Important: General Disclaimer
- MoneyHub provides this guide for informational and journalistic purposes only and does not constitute personal financial advice, investment advice, or a recommendation to buy, sell, or hold any financial product, including KiwiSaver funds, investment funds or other investment options.
- The investments highlighted on MoneyHub are selected based on historical performance data, fees, structure, and general market observations. Past performance is not a guarantee of future results.
- Any opinions, preferences, or "favourite" designations reflect the editorial views of MoneyHub and are not guarantees of future performance. Past results are not indicative of future returns, and all investments carry inherent risks, including the potential for capital loss.
- MoneyHub is not a financial adviser under the Financial Markets Conduct Act 2013, and we are not regulated by the Financial Markets Authority (FMA) to provide personalised financial advice. Readers should seek independent advice from a qualified, licensed financial adviser or use official tools before making any investment decisions. We strongly recommend considering your personal circumstances, risk tolerance, and financial goals, and consulting a professional to assess suitability.
- The information in this guide is based on historical data and may become outdated as a result. We do not accept liability for any loss or damage (including consequential loss) arising from reliance on this content, errors, omissions, or changes in market conditions. While we strive for accuracy, market data and fund performance can fluctuate. We encourage regular review of official fund reports or consultation with providers to ensure accurate information.
- MoneyHub may have commercial arrangements with certain schemes or providers for general promotional purposes. However, fund selections are based on merit and editorial judgment, not payment. For the latest details, contact the relevant fund provider directly.
Young New Zealanders (for example, those in their teens and twenties)
Beyond setting up a savings fund, the money you receive can work for you over the coming years before you need it for significant life events. We outline two popular options below:
Option 1: Investing in Managed Funds and Index Funds
Objective: To provide long-term gains to give you more options later on when it comes to buying a home, launching a business and/or starting a family
How it works:
If you're unlikely to need the money in the next 5-10 years, tax-effective investments such as managed and index-tracking funds are a popular place to start. For example, $10,000 invested in a fund for ten years will be worth $20,000 if the average return is 7.50% per year when using a compound interest calculator. Of course, this 'doubling' is by no means a guarantee - we suggest considering historically top-performing funds as a starting point. Recently, in the ten years to 31 December 2023 (per Morningstar data), 50+ investment funds returned an average of 10% p.a, outperforming term deposits or savings accounts. With every investment, diversification is critical - putting 100% of your money into a single fund adds risk.
Option 2: Investing in Shares
If you're interested in investing in shares directly rather than via funds, many New Zealanders have made a lot of money by picking certain companies and holding for the long term. Examples of most traded shares have included Tesla, Apple, Microsoft, Amazon and Alphabet. However, a diversified approach is essential to protect your original investment - many an inheritance has been lost on 'big' shares that later went bust. Examples include CBL Insurance, Pumpkin Patch and Feltex in New Zealand, and Enron, Lehman Brothers, General Motors and Chrysler in the US.
Option 1: Investing in Managed Funds and Index Funds
Objective: To provide long-term gains to give you more options later on when it comes to buying a home, launching a business and/or starting a family
How it works:
If you're unlikely to need the money in the next 5-10 years, tax-effective investments such as managed and index-tracking funds are a popular place to start. For example, $10,000 invested in a fund for ten years will be worth $20,000 if the average return is 7.50% per year when using a compound interest calculator. Of course, this 'doubling' is by no means a guarantee - we suggest considering historically top-performing funds as a starting point. Recently, in the ten years to 31 December 2023 (per Morningstar data), 50+ investment funds returned an average of 10% p.a, outperforming term deposits or savings accounts. With every investment, diversification is critical - putting 100% of your money into a single fund adds risk.
Option 2: Investing in Shares
If you're interested in investing in shares directly rather than via funds, many New Zealanders have made a lot of money by picking certain companies and holding for the long term. Examples of most traded shares have included Tesla, Apple, Microsoft, Amazon and Alphabet. However, a diversified approach is essential to protect your original investment - many an inheritance has been lost on 'big' shares that later went bust. Examples include CBL Insurance, Pumpkin Patch and Feltex in New Zealand, and Enron, Lehman Brothers, General Motors and Chrysler in the US.
Investing an Inheritance etc. in Funds and Shares - Pros and Cons
Pros:
Cons:
More information: How to invest in shares, index funds, active vs index funds and managed funds.
- Managed and index-tracking funds outsource investment management to experts or a robust strategy (such as following the S&P500).
- It's a set-and-forget approach, saving you time.
- Long-term results will, generally, exceed any savings account.
Cons:
- All investments are risky, and in the short term, the value of your money may fall in value.
More information: How to invest in shares, index funds, active vs index funds and managed funds.
Other options
Other options beyond investing include helping fund your education (i.e. assisting with living costs), buying a car (to help you get to/from employment), going on holiday, learning a new skill or funding an experience you've always wanted to have. After careful consideration, whatever feels right will most likely be the most sensible choice.
Middle-Aged New Zealanders (for example, those in their thirties to early sixties)
A windfall for those with young families will be warmly welcomed, but it will be equally valuable to anyone approaching retirement with a mortgage still hanging over them. As such, it may be tempting to put everything on your mortgage, but there are pros and cons to doing so. We outline popular options to consider to make your good fortune work for you.
Option 1: Making a Lump-Sum Mortgage Repayment
Mortgage repayments are likely to be your highest ongoing cost; reducing them will be appealing and is arguably a sensible choice.
Repaying a mortgage vs investing the money for later
How to make an early repayment:
If you have a $500,000 mortgage and make a $200,000 overpayment when re-fixing, at an average two-year fixed mortgage rate of 4.50%, this would cut monthly costs by $1,265 over 20 years (per our amortisation calculator). Over the lifetime of the mortgage, the saving in interest payments would be $103,000.
However, if you invested the $200,000 instead, it could turn into $849,570 over 20 years (applying an average return of 7.50% p.a which is compounded). This is 8X the savings generated from overpaying the mortgage.
Option 2: Investing in Managed Funds and Index Funds
While your official retirement age is a while away, the longer your money is invested, the better chance of greater returns. If you're mortgage-free or comfortable with what you owe and prefer to invest, there are a lot of opportunities for any lump sum of money. Tax-effective investments such as managed and index-tracking funds are a popular place to start.
For example, $200,000 invested in a fund for ten years will be worth $400,000 if the average return is 7.50% per year (compounded). Of course, this 'doubling' is by no means a guarantee - however, it can be compelling to shortlist historically top-performing funds.
You may decide to invest 80% in funds and keep 20% for individual share purchases or a ratio that suits your risk profile. Maintaining adequate diversification is essential to protect your investment. Please remember, investing is a long-term process - our investing guides help explain everything in detail.
Option 3: Renovating your home for a comfortable retirement, going on holiday and/or upgrading your car
If you're comfortable with your existing investments and want to enjoy a lump sum now rather than later, there are plenty of options. Many New Zealanders look to improve their lifestyle while in good health and take an extended holiday or invest in their lifestyle.
Option 4: On-gifting the money
If you don't need the windfall you've received, it's perfectly reasonable to consider passing it on. Whether it's grandchildren, a charity or an organisation you'd like to support, there are endless options. In addition, any donations to registered charities will allow you to claim a tax refund, so you'll get a form or rebate for your generosity.
Important: Whatever you do, it's essential to put yourself first financially as you head into retirement. You can be as generous as you like with your time and energy, but having a suitable nest egg is essential for a happy and healthy retirement. If you have adult children needing financial help, it's perfectly normal to assist them. However, looking after yourself must come first to avoid a family disagreement if and when promises or understandings around money or loans become contentious.
Option 1: Making a Lump-Sum Mortgage Repayment
Mortgage repayments are likely to be your highest ongoing cost; reducing them will be appealing and is arguably a sensible choice.
Repaying a mortgage vs investing the money for later
- There is an argument that the money you apply to a mortgage could be a lost opportunity to build wealth to repay more of your mortgage later. For example, $100,000 invested today could grow to $200,000 if the average return is 7.50% per year over ten years per our compound interest calculator.
- However, the interest costs you save by making a lump sum payment on your mortgage are also significant. Overpaying $100,000 saves around $25,000 of interest costs when the interest rate is 4.50% p.a. charged on a $100,000 mortgage over ten years per our amortisation calculator.
- The money you save from either having lower repayments, a shorter mortgage (or a combination of both) can be invested for your retirement. At the same time, you gain the freedom of owning more (or all) of the roof over your head.
How to make an early repayment:
- Re-fixing lump sum: When your mortgage term ends, you'll usually move to the floating rate if you don't re-fix at the best market rate. During this time, you can deposit as much money as you like as floating interest rate mortgages don't have early repayment penalties.
- Offset mortgage: If you want to lower your interest payments but still have the option of accessing your money, an offset mortgage may be a good option. You can deposit the money with your bank and lower your interest costs, but you may not get the most competitive interest rates. Our guide to offset mortgages explains what you need to know.
If you have a $500,000 mortgage and make a $200,000 overpayment when re-fixing, at an average two-year fixed mortgage rate of 4.50%, this would cut monthly costs by $1,265 over 20 years (per our amortisation calculator). Over the lifetime of the mortgage, the saving in interest payments would be $103,000.
However, if you invested the $200,000 instead, it could turn into $849,570 over 20 years (applying an average return of 7.50% p.a which is compounded). This is 8X the savings generated from overpaying the mortgage.
Option 2: Investing in Managed Funds and Index Funds
While your official retirement age is a while away, the longer your money is invested, the better chance of greater returns. If you're mortgage-free or comfortable with what you owe and prefer to invest, there are a lot of opportunities for any lump sum of money. Tax-effective investments such as managed and index-tracking funds are a popular place to start.
For example, $200,000 invested in a fund for ten years will be worth $400,000 if the average return is 7.50% per year (compounded). Of course, this 'doubling' is by no means a guarantee - however, it can be compelling to shortlist historically top-performing funds.
You may decide to invest 80% in funds and keep 20% for individual share purchases or a ratio that suits your risk profile. Maintaining adequate diversification is essential to protect your investment. Please remember, investing is a long-term process - our investing guides help explain everything in detail.
Option 3: Renovating your home for a comfortable retirement, going on holiday and/or upgrading your car
If you're comfortable with your existing investments and want to enjoy a lump sum now rather than later, there are plenty of options. Many New Zealanders look to improve their lifestyle while in good health and take an extended holiday or invest in their lifestyle.
Option 4: On-gifting the money
If you don't need the windfall you've received, it's perfectly reasonable to consider passing it on. Whether it's grandchildren, a charity or an organisation you'd like to support, there are endless options. In addition, any donations to registered charities will allow you to claim a tax refund, so you'll get a form or rebate for your generosity.
Important: Whatever you do, it's essential to put yourself first financially as you head into retirement. You can be as generous as you like with your time and energy, but having a suitable nest egg is essential for a happy and healthy retirement. If you have adult children needing financial help, it's perfectly normal to assist them. However, looking after yourself must come first to avoid a family disagreement if and when promises or understandings around money or loans become contentious.
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Your investor guide to investing inheritance or a windfall is sponsored by our friends at Kernel, a leading New Zealand-based index fund manager and investment platform.
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Retired New Zealanders
It's not as common for someone to receive an inheritance or windfall in their golden years. However, it will always be useful, especially if you don't have your finances watertight. Many financial commentators will agree that being cash poor in retirement is a miserable experience. Furthermore, many retirees don't know for certain how much they should be spending to be comfortable but avoid the risk of running out of money.
If you're retired and still have some debts, we suggest considering the following process when dealing with what to do with an inheritance or windfall:
If you're retired and still have some debts, we suggest considering the following process when dealing with what to do with an inheritance or windfall:
- Step 1: Clear credit card debts, personal debts and any other debt that's costing you money. This is the most 'expensive' debt, so getting rid of it as much as possible will make your income (e.g. superannuation payments) go further. You can then lower your credit card limits to reduce the risk of getting into debt again. For example, a $1,000 limit is a 'safe' amount to cover emergencies while avoiding racking up non-essential spending/debt.
- Step 2: Pay down your mortgage as much as you can - the less ongoing costs and the more security you have as a retiree, the better.
- Step 3: Put six months of essential expenses into a savings/emergency fund. While superannuation payments are designed to cover essential expenses, having a sizeable savings account will give you more freedom.
- Step 4: Whatever is left, consider investing in an appropriate fund for your age and needs. Our guide to asset allocation has more details.
Frequently Asked Questions
Is there a 'boring' option that is proven to make money that I don't need to think about?
Many investing experts would argue that investing in a well-performing fund or ETF can deliver solid year-on-year returns. For example, if you invest $50,000 for thirty years, if it earns a net 8% p.a., you'll be left with just over $500,000 (applying compounding returns). This will be invaluable during retirement. Our guides to Index Funds, Managed Funds a and ETFs (Exchange Traded Funds) have more details.
Should I invest or pay down my mortgage?
It depends on what you prefer - lower mortgage repayments or a nest egg not connected to your home? The benefit of a lump-sum mortgage repayment is that you'll lower your ongoing costs, which lets you invest every month. However, taking a sum of money and investing it for the long-term in the right fund or basket of shares has the potential to be very rewarding. If you're in doubt, you could pay down some of your mortgage and invest the rest.
Are home improvements a good use of inheritance?
It depends on what you're looking to do, but if your home requires some essential repairs, doing them sooner rather than later and eliminate further costs. Some improvements can save you ongoing electricity costs - insulation, heat pumps and double glazing, or even solar panel installation being some examples.
Suppose you're considering a kitchen or bathroom renovation. In that case, you may want to consider making an initial lump sum mortgage payment and then, when you're ready, borrowing against your home again to pay for it. You may then find you prefer to save up rather than reduce the go backwards on your mortgage.
Suppose you're considering a kitchen or bathroom renovation. In that case, you may want to consider making an initial lump sum mortgage payment and then, when you're ready, borrowing against your home again to pay for it. You may then find you prefer to save up rather than reduce the go backwards on your mortgage.
Should I invest in ETFs, funds or shares?
How you decide you invest will depend on how much volatility you can handle. There are dozens of active and index-tracking funds with a proven track record, although past performance does not guarantee future returns. Shares require more judgement and close monitoring and also intensify your risk. As outlined in our guide, the wealthiest New Zealanders invest heavily into funds and trust their investment manager to provide long-term returns knowing that the short-term can be up and down.
Should I split the inheritance into mortgage, investing and something I can enjoy right now?
It's your money to do what you please. It's also perfectly reasonable to apportion the money for specific purposes. For example, you may want to put 25% in a savings account for emergencies, 25% on your mortgage, 25% in investments, and spend 25% on a car, holiday, boat or a combination of whatever you want. If your inheritance is sentimental, having a holiday or buying a car may be a way to remember the person who gifted you the money. Whatever feels right around spending the money will likely be the most sensible decision.
Should I use inheritance to help pay off my student loan?
Your student loan is interest-free while you're living in New Zealand. You will pay it off progressively every time you get paid. If you repay a student loan, you're missing out on potential gains from an investment or paying more interest on your mortgage than you need to. Our guide to student loans explains more.
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Your investor guide to investing inheritance or a windfall is sponsored by our friends at Kernel, a leading New Zealand-based index fund manager and investment platform.
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