By John Kimelman

A financial windfall from an inheritance, the sale of a business, an insurance settlement, lottery winnings, or some other large one-time payment can seem like a blessing from heaven. Such windfalls can allow beneficiaries to pay off debts, change careers, make gifts, or pursue their travel dreams.

Yet many Americans aren't ready for windfalls coming their way. When they are mismanaged, windfalls can have tragic consequences.

Eric Dostal, a 36-year-old managing director at New York City-based Wealthspire Advisors, has seen good and bad outcomes that can arise from windfalls. Dostal tells of one responsible client in her mid-20s, an employee of Palantir Technologies, whose restricted stock units in the highflying business had begun to vest. Working with the client, who is still with Palantir, Dostal invested much of this seven-digit windfall in the broader stock and bond markets, while also holding on to some Palantir stock.

But Dostal unfortunately couldn't control another client's excessive spending in the wake of a 2019 inheritance valued at roughly $3.5 million. The sum dwarfed the rest of the client's investible assets.

"We talked through some of his goals and he was taking a regular distribution from it within the parameters of the projections that we had done," says Dostal. "But then the client was asking for larger and larger distributions. I kept checking in, asking what was going on, and I showed him what was happening to his portfolio. But he said, 'I'm just enjoying life, spending time with friends.'"

Dostal says that the client eventually realized that he could "circumvent me, so he started pulling money from the account directly from the custodian." By 2023, just five years after receiving the inheritance, the client had spent the entire amount, Dostal says.

Sad tales like this demonstrate that advisors ultimately can't stop clients bent on quickly spending their newfound wealth. And, handled incorrectly, a sudden windfall could have a detrimental impact on a client's emotional health and even their long-term financial health. Here are four ways advisors help clients manage an influx of cash successfully:

Tap a professional. An experienced advisor will create a financial plan, including a realistic spending plan, and then diversify across investments to reduce the risk of losing a big chunk in a downturn tied to specific company or asset class.

Autumn Knutson, a 34-year-old certified financial planner with Styled Wealth, a Tulsa, Okla.-based advisory firm, has a young client who hired her to diversify gains from a "six-figure" cryptocurrency account in "a more prudent" and less risky way than the money was initially invested.

The client used some of the proceeds from the crypto sale to pay off debt. While Knutson is cautious about investing too heavily in crypto assets, she says crypto can play a role in a properly diversified portfolio.

Invest first, spend later. Surprisingly, some advisors say that investing an unexpected fortune generally is a simpler task than talking to clients about the ways they should spend the money over time. Those conversations, and the client decisions that follow, can be as much art as science. Advisors may have to tap practices from behavioral finance and therapy to guide clients.

Knutson says that she's come across instances in which the beneficiary of an inheritance is uncomfortable taking even modest distributions because they are still mourning the death of the person who provided the funds. "I had one client who wanted to wish the money away to have a dead brother back," she says.

In such instances, Knutson might counsel a client to let go of some of that survivor's guilt. "I share with them that the point of the money, from this person who loved you, is to be able to make choices that make your life easier."

Consider dollar-cost averaging. When it comes to investing the proceeds of a windfall, there's a healthy debate about whether dollar-cost averaging into the markets over a year or longer is preferable to investing all the money upfront. Studies show that investing a windfall all at once normally outperforms dollar-cost averaging. For example, a 2023 study by Vanguard indicates that investing a lump sum upfront outperformed dollar-cost average roughly two-thirds of the time, based on the period 1976 through 2022.

"The math and history will tell you that putting all the dollars to work today will serve you better than dollar-cost averaging over time," says Dostal. "But there's also an emotional component and it feels bad to put 100% of a windfall to work in the market on Day One and have it go down soon afterward."

Matthew Liebman, 47, founder and CEO of Amplius Wealth Advisors in Blue Bell, Pa., sees risks to lump-sum investing. "A windfall is often a once in a lifetime event for an investor," he says. "The downside to dollar-cost averaging is way less to them than the downside that can arise from lump-sum investing."

Pay it forward. One challenge recipients of windfalls face is determining how generous to be with others.

When it comes to making gifts to family members, Liebman advises clients to follow the famous Warren Buffett dictum: "Leave enough to your children so that they can do anything, but not enough that they can do nothing."

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 23, 2025 16:36 ET (20:36 GMT)

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