Q

What should I do with my tax refund?

A

We recommend investing it!

Tax refunds have been called the biggest paycheque of the year. Since the average refund is $1,634, it’s worth noting: with great windfalls come great responsibilities…as well as a host of truly terrible temptations. So what are you going to do with yours?

As our scientific colleagues at Wealthsimple Magazine recently showed, many seemingly gratifying ways to spend that money won’t pay off with long term joy dividends. Filling your laugh lines with enough injectables to make you look like the star of a Hellraiser sequel? Installing a Jacuzzi (aka a petri dish-in-training) in the backyard? Putting it all on Whichever-coin happens to be the can’t-lose cryptocurrency of the moment, until it falls off the cliff a week from Tuesday? Though perhaps tempting, none of these ideas will provide the kind of continuing contentment you could get from sitting back and watching a small investment grow big over the years.

As is always the case, if you’re carrying credit card balances, those should be paid first, since any investment gains will never be able to offset what you’re paying in interest on card debt. If you’re free of debt and have no immediate need for the money, consider putting money directly into your RRSP or TFSA, depending on when you’ll need to use the money. (If a big purchase is imminent, consider parking your money somewhere safely outside of your checking account where it can earn some interest, like our Wealthsimple Smart Savings account)

Data on investment returns consistently shows that in the vast majority of cases, low-cost, passive investments that mirror major stock indices outperform active stock pickers, who nonetheless charge you major fees for their services. Wealthsimple will help guide you to find the absolute right exchange-traded funds, or ETFs to turn your tax refund into something that you’ll be able to marvel at for years to come.

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