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

Woman checking her computer and holding coffee cup
Investing

The Best Stocks to Invest $1,000 in Right Now

These Canadian stocks are backed by fundamentally strong businesses and are likely to benefit from solid demand despite external pressures.

Read more »

A meter measures energy use.
Dividend Stocks

To Build a Steady Income Portfolio, These 3 Canadian Utility Stocks Belong on Your Radar

Utility stocks pair regulated earnings with dividends that can hold up in rough markets.

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

Here’s How Many Shares of Telus You’d Need for $10,000 in Yearly Dividends

Down 46% from all-time highs, Telus is a TSX dividend stock that offers you a yield of almost 9% in…

Read more »

Canadian dollars are printed
Dividend Stocks

How to Create a Monthly Income Machine With Your TFSA

Add this TSX monthly dividend-paying stock to your self-directed TFSA portfolio for monthly and tax-free passive income.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, March 10

Hopes of a quicker resolution in the Middle East helped the TSX recover from steep intraday losses, with markets watching…

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Here’s How Many Shares of Capital Power You Should Own to Get $1,000 in Dividends

Discover the potential of Capital Power as a leading dividend stock on the TSX for reliable returns and future growth.

Read more »

dividends grow over time
Investing

2 Growth Stocks I Expect to Surge Well Into This Year and Beyond

These TSX stocks will likely deliver solid returns as they are benefiting from strong demand for their products, technology, and…

Read more »

Happy golf player walks the course
Dividend Stocks

How a TFSA Can Generate $4,360 in Annual Tax-Free Passive Income

This strategy can boost yield while reducing portfolio risk.

Read more »