For most people, it's a dream scenario. You are given $10,000, perhaps from an inheritance. You already have a decent, well-balanced retirement portfolio, so this money is really frosting on the cake. How should you invest it?
We asked a cross-section of fund managers and investment advisers. Here are some of the most interesting responses.
Ken Serbu, vice-president and portfolio manager, Index Wealth Management
Mr. Serbu has a straightforward recommendation: Buy units of the Horizons S&P/TSX 60 Index exchange-traded fund (HXT-TSX). He gives four reasons for this advice.
The first is cost, both initial and ongoing. He notes the annual product-management fee for this ETF is just 0.03 per cent.
His second reason is the lack of a "cash drag" from dividends. Using this ETF eliminates the need to reinvest dividends. Other investments would require the individual to pay a commission each time they wanted to reinvest the dividends paid.
A third reason cited by Mr. Kerbu is tax efficiency. This ETF pays no dividends so there are no taxes payable until the security is sold. It also doesn't generate taxable capital gains or other distributions. "This allows your money to compound over time in your favour instead of it being paid to the taxman," he says.
And the final reason is simplicity. This investment doesn't generate any annoying tax slips or rebalancing. "Just purchase the position once and keep your focus instead on managing the rest of your portfolio."
Peter Hodson, chief executive officer, 5i Research Inc.
For this scenario, Mr. Hodson also favours low-maintenance investments that can be bought and held. "The key here is not to gamble but invest in companies that might produce superior growth over a very long term," he says.
Mr. Hodson proposes taking equal positions in the shares of three companies. The first is Google's parent company, Alphabet Inc. (GOOG-NASDAQ). He likes not only the core Google online business but also the potential of its new technologies, such as virtual reality and artificial intelligence. And its $80-billion (U.S.) held in cash doesn't hurt, either.
His second pick is Knight Therapeutics Inc. (GUD-TSX) , a Quebec-based specialty pharmaceutical company focused on acquiring, licensing and manufacturing innovative prescription and over-the-counter products. Mr. Hodson says Knight has a proven management team and $600-million in cash, which he expects the company to use to become a significant player in the industry.
And the final selection is Kinaxis Inc. (KXS-TSX), an Ottawa-based provider of cloud-based subscription software that helps businesses manage their supply chains. Mr. Hodson say Kinaxis is perhaps the riskiest of these three as it has been public for only about two years, but he likes its sales growth trend and cash position.
John Kaiser, investment newsletter publisher, Kaiser Research Online
John Kaiser is a well-known figure in the Canadian resource investing world. For more than 20 years he has run an investment service highlighting attractive junior mining stocks.
He sees a turnaround ahead for the sector, and he considers the more speculative nature of the investments he covers to be well-suited for a person investing funds that are not essential to their retirement planning.
Mr. Kaiser recommends a portfolio of what he calls "optionality plays." That is, companies with an existing resource that may need a higher commodity price to be developed, but which also have untested exploration potential. He expects the better of these firms to be acquired by larger companies as metal prices creep higher.
Mr. Kaiser advocates an equally weighted portfolio of six companies. Three of them are gold-related: Midas Gold Corp. (MAX-TSX), Serengeti Resources Inc. (SIR-Venture Exchange) and Nevada Exploration Inc. (NGE-Venture).
His other picks are a zinc play by the name of InZinc Mining Ltd. (IZN-Venture), a uranium company called Uravan Minerals Inc. (UVN-Venture), and Scandium International Mining Corp. (SCY-TSX). Scandium is a rare mineral used in aluminum production. Scandium International owns the rights to a large deposit of the mineral in Australia.
Robert McWhirter, president, Selective Asset Management
Mr. McWhirter, too, is taking the opportunity to use the windfall to recommend a more speculative investment.
MedX Health Corp. (MDX-Venture Exchange) is based in Mississauga. It has developed a device that can look 2 millimetres below the skin surface to check moles and other irregularities for cancer. It is licensed for use in the United States, Canada, the European Union and Australia. The pharmacy chain Boots offers the service in Norway, and Britain is accelerating its rollout.
Mr. McWhirter says sales are expected to almost double to $2-million this year. MedX is expected to be cash-flow break-even by the end of 2016, with significant growth in sales and recurring revenue from each scan performed in 2017. "The investor with the windfall probably knows someone with skin cancer and can easily relate to the need for the easy access to skin-cancer screening provided by this service," says Mr. McWhirter.
Jerome Hass, portfolio manager, Lightwater Partners
Mr. Hass decided to take a different tack with his advice for the lucky recipient of $10,000.
"Generally, when Canadians get an unexpected windfall from great-aunt Penelope they have been brainwashed into paying down their mortgages," Mr. Hass says. "But the best thing you could do is not pay down your mortgage," and invest the money instead.
He notes that if you have a 20-per-cent down-payment on your mortgage, you effectively have a 5-to-1 leverage on your capital. In other words, it allows you to benefit five times as much if your asset increases in value, compared to if you invested only the base amount. Mr. Hass also points out that if your home is your principal residence, your capital gains are tax free.
"The money within your mortgage is your most powerful form of capital," says Mr. Hass. "By prepaying a mortgage, you diminish its role and reduce your long-term portfolio performance."