Here’s What to Do With Your 2020 Tax Refund

Looking for tips on where to invest your 2020 tax refund? Dividend investors should consider Fortis Inc. (TSX:FTS)(NYSE:FTS). Investors looking for a passive investment or diversification should consider an ETF such as iShares Core MSCI World Ex-Canada ETF (TSX:XAW).

For many investors, February and March provide an interesting time of year — one which allows for a “windfall” of sorts for those who have contributed to a Registered Retirement Savings Plan (RRSP) and will receive a tax refund. Just what to do with this extra money can be a point of consternation for some.

Investor or not, the temptation to finally go on vacation or buy that coveted 80″ TV is real, and while many find the internal fortitude to ignore their urges and stash all that cash away for retirement or investing purposes, spending some of this money is a reality for most. On this note, I’d recommend paying down any high-interest credit card debt first before making discretionary purchases.

For those with the ability and inclination to do so, I’d recommend putting an allocated percentage in a registered account like a TFSA or RRSP, for those who want to get started on next year’s tax deductions and take advantage of compounding within these registered accounts. I’d also recommend deciding on what percentage to stash away beforehand, and sticking to it. Investing is all about patience, after all, so finding a percentage of your refund you wish to invest permanently is important. Set it and forget it.

With this new cash now invested in a registered account, the questions become harder — i.e., where to put this money to work, or whether to put this cash to work at all. After all, if you’re fully invested, it may make more sense to keep a wad of cash available to nibble away on lower prices over time, especially if you find yourself in the defensive/bearish camp, like me. For most, it will make sense to put most, if not all, of this cash to work to generate long-term returns.

Investors putting their cash to work have a slew of options to choose from, and depending on one’s age, income needs, propensity for risk, and other factors, the right options for each individual investor will vary. On this note, it’s hard to recommend a “correct” course of action, though there are a few great options out there for different investor types I’ll point out here.

For dividend investors, or those who are extremely conscious about long-term income needs in retirement, a company like Fortis is an excellent choice. This utilities company is closing in on five decades of dividend increase, meaning investors can expect their income to grow over time, helping to combat inflation. This is also an extremely stable business, with low risk of disruption for the coming decades. Fixed-income options such as bonds offer yields that are simply far too low today.

For investors looking for solid diversification and are more passive by nature, buying into an exchange-traded fund like iShares Core MSCI World Ex-Canada ETF can provide non-Canada exposure to a portfolio, offsetting any home bias that may be present in one’s portfolio.

Stay Foolish, my friends.

Fool contributor Chris MacDonald has no position in any stocks mentioned in this article.

More on Investing

Safety helmets and gloves hang from a rack on a mining site.
Stocks for Beginners

Canada’s Infrastructure Boom May Be Closer Than You Think – Here’s How to Position Now

Canada’s infrastructure boom may reward the behind-the-scenes TSX suppliers, not just the headline megaproject names.

Read more »

woman looks at iPhone
Dividend Stocks

All It Takes is $3,000 in Telus to Generate Hundreds in Passive Income

Investors looking to generate nearly $300 in passive income only need to start with a $3,000 investment right now.

Read more »

child looks at variety of flavors at ice cream store
Stocks for Beginners

The Key Things to Understand Before Holding U.S. Stocks in a TFSA

Canadians love U.S. stocks in their TFSAs, but dividends, currency, and account choice can quietly change the math.

Read more »

monthly calendar with clock
Dividend Stocks

Looking for Monthly Income? This 5.8% Dividend Stock Is Worth a Look

This Canadian monthly dividend stock offers a consistent payout backed by stable oil production and long-life assets.

Read more »

Runner on the start line
Stocks for Beginners

2 Growth Stocks That Could Be Positioned for a Strong Run in 2026

Despite their recent rally, these two TSX growth stocks could still have plenty of upside left in 2026.

Read more »

investor looks at volatility chart
Dividend Stocks

This TSX Dividend Stock Has Fallen 20% – and I’d Still Consider It Worth Owning

This TSX dividend stock has dropped 20%, but its stable income and disciplined strategy still look impressive.

Read more »

Young Boy with Jet Pack Dreams of Flying
Investing

The Canadian Stocks I’d Focus on for Growth Potential in 2026

These five Canadian stocks offer different forms of growth potential in 2026, making them some of the best Canadian stock…

Read more »

Metals
Stocks for Beginners

Why These 2 Canadian Stocks Look Like Bargains Right Now

These two TSX stocks look cheap, but still have the cash flow and balance sheets to keep rewarding shareholders.

Read more »