Imagine that $10,000 has fallen out of the sky – perhaps a relative left you the money in a will. What should you do with the cash? Let’s suppose that you already have a decent, well-balanced retirement portfolio.
It’s a question The Globe and Mail has posed before to investing and finance professionals. How should one invest this sum?
This time around, the answers were notably different. Perhaps it’s a result of the multiyear bull market for stocks. Maybe it has something to do with the uncertain times we’re living in.
Despite being asked for investment advice, several experts recommended using at least part of the windfall for some form of charity, meaningful spending or personal development. Here’s what they advised.
Adrian Mastracci, portfolio manager, Lycos Asset Management Inc., Vancouver
"Don’t rush into anything, no matter how appealing,” says Mr. Mastracci. His recommended first step is to park the cash in a savings account and leave it untouched for a month or two.
Then, he advises considering four options. The first is reducing debt, especially credit card balances, but also lines of credit, mortgages and student loans. The second option is saving the windfall, perhaps through a simple low-risk investment or other options, such as supplementing a family business, establishing a tax-free savings account for a family member, starting or rebuilding a family emergency account, or setting funds aside for a future income-tax instalment.
The third option Mr. Mastracci recommends is spending, such as replacing an aging vehicle or appliance, renovating a home or cottage, or travelling. Finally, he advises helping others by donating to charity, directly helping someone less fortunate or helping an adult child to purchase a vehicle or residence.
Andrea Horan, principal, Agilith Capital Inc., Toronto
Despite Ms. Horan’s position as a principal at an investment firm, she has other ideas for deploying a personal windfall.
“Ten-thousand dollars isn’t that much money, so the returns from investing it would not, on their own, make a big financial difference,” she says.
If the recipient is receiving the inheritance early on in his or her career, Ms. Horan advises investing in training or education that may improve their employment trajectory. “Over years, this could have dramatic return implications,” she says.
If the recipient is older, he or she could spend it on something that would provide enjoyment, such as a trip or home renovation, or use it to reduce outstanding debt.
Michele Robitaille, managing director, Canadian equity, Guardian Capital LP, Toronto
Ms. Robitaille recommends a balanced approach. Her advice is to apply 25 per cent of the funds toward travel or some other “self-pampering or self-indulgent” type of item. Then, she suggests taking another quarter and putting it into a guaranteed investment certificate (GIC) as part of a “rainy day” fund to cover future unexpected expenses.
She recommends investing the remaining 50 per cent by increasing one’s portfolio weighting in global equities through a conservatively managed global dividend fund with a focus on sustainable dividend growth.
Given the late stage of the economic cycle and the significant macroeconomic and geopolitical risks in play, the windfall recipient should consider gradually buying into this investment in increments over the next two years.
Kim Bolton, president and portfolio manager, Black Swan Dexteritas, a global technology hedge fund, Toronto
Mr. Bolton is focused squarely on investments. His firm believes technology is the engine of economic growth and is an essential part of any investment portfolio. He notes the S&P 500 Information Technology Sector Index’s 10-year annual return is above 17 per cent.
For the $10,000 windfall, Mr. Bolton recommends buying shares of Xilinx Inc. (XLNX- Nasdaq). Xilinx is a San Jose, Calif.-based maker of next-generation microchips. The company is at the core of several key technological innovations, Mr. Bolton says, including 5G wireless networks, cloud computing, artificial intelligence and autonomous driving. Also, the company is well diversified, with customers making electronic equipment for many uses, including the wireless, aerospace, industrial, scientific, automotive and consumer sectors.
Ron Mayers, director of family office practice, Blue Bridge, Montreal
Blue Bridge is an independent wealth manager and multi-family office, with mainly high-net-worth clients. Mr. Mayers’s advice reflects how someone in that position could positively use a $10,000 windfall.
“Congratulations!” he says. “You can have a legacy. By all means invest this money – in someone, not something, and do it now.”
He favours once-in-a-lifetime experiences for the recipient and others. For example, take a deserving young family to Walt Disney World. “Your grandkids, the family of a valued caretaker or employee, the nice family who lives down the street with the kid who always shovels your walk. If you can’t think of anyone, get in touch with Make-a-Wish Canada.”
He also suggests travelling to a developing nation or one of the impoverished parts of our own country and looking for ways your funds could help pay for someone’s education or bankroll the costs for an underprivileged hockey team.
“If you don’t understand by now that it is not only better, but far more gratifying, to give than it is to receive, then you really need to take my advice,” says Mr. Mayers. “If you do know this, then you know you’re giving yourself the greatest gift you can.”