XAW:CC - Where I'd Invest a $10000 Windfall Right Now
2023-10-26 20:30:00 ET
In the current financial backdrop, marked by rising interest rates and palpable inflation, receiving an unexpected $10,000 windfall can feel like a rare bright spot.
The immediate temptation? Giving into the urge for some “revenge spending.” After months, maybe years, of frugality and tightening belts, that dream getaway, a lavish shopping spree, or even that shiny new car might seem justifiable. After all, who doesn’t deserve a break?
However, as enticing as these immediate pleasures might be, I’d advocate for a pause, a deep breath, and a moment of reflection. There’s power in restraint and the art of delayed gratification. By thinking long-term, that windfall can serve as a building block for your financial future.
Before even contemplating the investment landscape, consider the foundational aspects of personal finance. Is your emergency fund robust enough to weather unexpected storms? If not, allocating a portion of the windfall to bolster it can be a wise move.
Then, there’s the tax-free savings account (TFSA). With its $6,500 contribution limit, it offers a tax-efficient way to grow your wealth. And for those with homeownership aspirations, the first-home savings account (FHSA) could be an enticing option, allowing eligible individuals to contribute up to $8,000 this year.
Once the basics are addressed, the investment world awaits. As an ETF aficionado, the landscape is vast and varied, with offerings that cater to almost every risk appetite and financial goal. Here’s where I would personally channel my investment energies.
Diversification is the name of the game
When I think about selecting equity investments, my aim isn’t to chase that elusive, high-risk “moonshot” that might (or might not) deliver meteoric returns. Instead, I’m looking for a steady journey, one where I can reasonably match the market’s long-term average return.
I look at stocks of all sizes: large companies that are household names, mid-sized firms that are growth-oriented, and smaller, nimble entities brimming with potential. I hold these in weights corresponding to how each one currently sits in a benchmark market index.
But it’s not just about company size. It’s also about ensuring I have investments spanning all 11 sectors of the economy, from technology to utilities, from healthcare to finance. Each sector has its own rhythm, and being invested across the board allows me to tap into diverse growth stories.
Lastly, geography is a major player in my diversification strategy. Markets across the globe behave differently based on their unique economic, political, and cultural landscapes.
So, I spread my investments across the U.S., Canada, international developed countries with mature economies and emerging markets that are in the early stages of rapid growth.
An ETF to put this into play
To truly encapsulate my diversification strategy, there’s an ETF I lean on: iShares Core MSCI All Country World ex Canada Index ETF ( TSX:XAW ).
What’s impressive about XAW is its extensive reach. It holds thousands of stocks, capturing a broad swath of the global equity landscape. About 60% of its holdings hail from the robust U.S. market, while the remainder spans international shores.
The best part? This wide-ranging exposure doesn’t come with a hefty price tag. The ETF charges a modest 0.22% expense ratio. To put that into perspective, for a $10,000 investment, you’re looking at approximately $22 in annual fees. That’s a small price to pay for such extensive diversification.
And as a cherry on top, XAW purposefully excludes Canadian stocks. This means that investors have the flexibility to hand-pick their own Canadian equities to complement XAW. If you’re wondering where to start with Canadian stock picks, the Motley Fool has some ideas below!
The post Where I’d Invest a $10,000 Windfall Right Now appeared first on The Motley Fool Canada .
Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy ..
2023