COVID-19 has forced everyone to rethink financial goals and objectives, says Robb Engen, a fee-only planner, and the blogger behind Boomer and Echo. “For some retirees, that has meant putting off large projects like home renovation until better times. But for those who have enough income to meet their spending needs and then some, I’d recommend squirrelling away any extra cash savings in a high-interest savings account to ensure you can pay cash for your next big-ticket purchase without cashing in any investments.”
Speaking of which, you may be keen to invest any “found money” by contributing to your RRSP or spousal RRSP. Or you could top up TFSAs, or start one for adult children who have yet to open one. If all registered contribution room has been spoken for, add to taxable accounts.
As a die-hard indexer, Engen—one of the experts on MoneySense’s annual ETF All-Stars feature—suggests an asset allocation ETF, assuming all short-term goals have been funded and accounted for. “An asset allocation ETF like Vanguard’s VBAL can be perfectly reasonable for a new retiree to hold for a 20- to 30-year retirement, and any future withdrawals from a TFSA are tax-free and will not impact means-tested benefits such as OAS.” Given his high own risk tolerance, Engen personally invests in the 100% stocks VEQT, his Desert Island pick.
However, he’s more cautious for clients. For older folk wanting some fixed income to cushion any further COVID-related market volatility, consider VBAL or VCNS (60% and 40% equities respectively.) BlackRock Canada’s iShares has a similar set of asset allocation ETFs, as do Horizons ETFs, all highlighted in the latest All-Stars package.
Matthew Ardrey, vice president for Toronto-based TriDelta Financial, says if there are no debts to pay off or shorter-term needs, you can invest for the long term. “With smaller amounts, I would look at investing in a solid blue-chip Canadian dividend-paying stock like CIBC or BCE. These both have dividend yields around 6%.”
However, for the larger $10,000 amount, Ardrey recommends considering an alternative income investment. These experienced little or no fluctuation during the March market downturn and yields range from 7% to 9%, he says. “These types of investments can provide a unique diversifier away from stock markets, especially if a second [COVID] wave causes a pullback.”
Ardrey uses the TrezCapital Yield Trust US: TRZ370 is the ticker for the Canadian-dollar F class version, a mutual fund offered via an Offering Memorandum; there’s a $5,000 minimum if you use an investment counsellor.
How would I play COVID found money myself? For $10,000, I’d go with any of the asset allocation ETFs mentioned earlier. For either $500 or $1,000 I suggest getting a bit more aggressive with something like the actively managed Ark Next Generation Internet ETF (ARKW/Nasdaq). This has done very nicely since I bought it earlier this year and might be a good TFSA investment: it’s a long-term growth play on the latest technologies, like AI and the cloud. Those with a similarly speculative bent might try a 5G ETF like NXTG, which was ETF All-Stars panelist Yves Rebetez’s Desert Island pick. (We’ll look at this theme in more depth in an upcoming column.)