Where I’d Invest a $10,000 Windfall Right Now

Even if you are working with disposable capital, it’s important not to be reckless and to pursue proven growth strategies rather than take unnecessary risks.

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Every investor has a different risk tolerance, and it’s influenced by a range of factors, including the source of the capital they have to invest with. Most investors are working with their hard-earned savings and are naturally averse to losing them, which lowers their risk tolerance.

However, when they have a healthy windfall sum to invest, they may push their risk tolerance, because the capital doesn’t have the same sentimental value.

It’s usually not a good strategy because if invested in the right stocks, a windfall can be just as impactful on your retirement nest egg as your savings.

A discounted growth stock

BRP (TSX:DOO) is an inconsistent but rewarding growth stock that has lost about a third of its value in the last five months. It can also be counted among the undervalued stocks on the TSX, with a price-to-earnings ratio of just seven. Even in this discounted state, the stock returned over 120% to its investors in the last five years. If we go back further, the 10-year returns (including dividends) are over 214%.

One of the reasons the company is experiencing this drop is slowing consumer sales and the future forecasts not being very attractive. However, it’s also believed that the stock is currently trading far below its intrinsic value, and one investment manager recently boosted their position in the company.

Buying it at this discounted and undervalued position can help an investor generate decent returns in the long term, primarily through capital appreciation, because even though it pays dividends, the yield is too low to have a significant impact on the returns.

A golden stock

Gold is usually sought as a hedge against a weak market, but Franco Nevada (TSX:FNV) offers more than that. As one of the largest precious metal royalty and streaming companies in the world, the company offers its investors a shielded exposure to the underlying asset.

It also offers the resilience of a gold stock during financial crises and the pace and performance of a typical growth stock during bull market phases when gold may not be performing very well.

Franco Nevada’s performance and its other fundamental strengths, like no debt and a geographically and asset-wise diverse portfolio, are reasons enough to consider this stock as a long-term holding in any given market.

However, the stock is currently quite attractively discounted as well and has lost over 31% of its value. Even with this discount, the stock returned over 294% to its investors in the last decade (including dividends).

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Franco Nevada made the list!

Foolish takeaway

Assuming that both stocks will offer a repeat performance of the last decade, $5,000 in each can help us more than triple the $10,000 windfall. That can make a sizable addition to the retirement nest egg, or if it’s in a TFSA, it can be used for an expense like a renovation or a new vehicle.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Brp. The Motley Fool has a disclosure policy.

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