Canadian investors experiencing a windfall, or simply sitting on cash, have a lot on their mind. Should they invest? Should they park it in Guaranteed Investment Certificates (GIC)? Maybe just take it out and hide it in their mattress?
Today, we’re going to look at some smart and simple ways to take care of that cash. They’re the basics, because the basics are often the best. So make sure to follow these tips to create more cash in the future, and keep it safe in the present.
Pay down debt
First and foremost, use at least part if not all of that cash to pay down debt that you have. However, I’m not talking about your mortgage. I’m talking about high-interest payments that need to be paid down in full. If you have credit card debt, get rid of it. Student loan payments, put a huge chunk to that.
Paying down debt means you’re now getting rid of huge amounts of interest payments for the near and long-term future. These are payments that add up substantially over time. So don’t dismiss debt payments because they’re not as exciting. Be smart and you’ll never have those payments again!
Start a TFSA emergency fund
Next up, start putting cash into an emergency fund. The Tax-Free Savings Account (TFSA) is an ideal place to do this. That’s because while contribution limits exist, withdrawal limits do not. So if your car’s engine needs replacing, you have cash available. You lose your job, again there’s cash you can take out.
Now starting out with a bit for an emergency fund is good, but continue to contribute over time. Investors should eventually create about three to six months of savings for this emergency fund. Starting out with that $5,000 would certainly be a great start.
Go to ETFs first
Exchange-traded funds (ETF) are a great first stop for investors. And there are so many out there these days! ETFs can provide investors with every type of investment comfort level, from high risk to completely conservative.
If you’re lost as to where to start, consider investing in an ETF that attempts to track the performance of the S&P 500 like the Horizons S&P 500 Index ETF (TSX: HXS). This ETF is up 15% year to date, outperforming the TSX today as well. This has been a strategy used by Warren Buffett for years. Keeping this safe for the long term will therefore make sure your shares continue to climb, with very minimal drops.
Get in on guaranteed investments
I teased GICs earlier, but with these rates you’d be crazy not to consider GICs for long-term income. A 5-year GIC on average yields 5% as of writing. That’s per year as well! Put in that $5,000 and you’re looking at $5,250 the first year, $5,512.50 the next and, well, you get the picture.
This is also a great strategy to guarantee that you’ll not touch that cash just because you feel like it. You’ll be better at budgeting and have cash set towards your future as well. Just make sure you put it towards an amount of time that makes sense with your goals, in case you really do need that cash sooner.
Blue-chip dividend stocks
Blue-chip companies are great, but blue-chip dividend companies are even better. These are companies that have usually been on the market for decades and remain household names. This has led them to create dividends and enough cash on hand to keep that dividend being safely paid out for years to come.
A great option these days is BCE (TSX: BCE). BCE stock is down during this economic uncertainty, especially with its competitors edging in on the market. However, it remains as having the fastest internet speeds and a huge amount of cash coming in through media investments. Therefore, you’re looking at safe revenue streams that are likely to continue for the foreseeable future.
Right now as well, shares are trading at 20.5 times earnings, with a whopping 7.4% dividend yield! So you can grab hold of a higher yield, at a lower cost, and look forward to more growth in the near future. Now go and put that $5,000 to work.
