What should young Ellis do with a $500,000 inheritance?

Q: My parents recently passed away and I inherited close to $500,000. I am 24 years old working as an engineer-in-training in Toronto with an annual salary of $65,000. My student loans are paid off and I carry no credit card debt. I currently live off my own salary with ~40% of my after-tax income going towards rent and car payments. I put 8% of my salary towards a company matched RRSP and they match an additional 4%. My TFSA is capped in a mix of ETFs.

My question is: what do I do with $500,000? I have looked into mutual funds and ETFs or buying instead of renting while maintaining a safety net since I will never be able to move back in with my parents should things go south. I am unsure what would be considered “safe,” yet I know I should start thinking net worth and building on this nest egg. Sorry for the open-ended questions, I am just looking for advice. Let me know if more details would help.

A: Thanks for your question, Ellis. I am sorry to hear about your parents. My philosophy on life as well as financial planning is:  Invest for the future, pay back the past, and live for the now.

If I were in your shoes I would:

 1) Invest for the Future.  Take 1/3rd of the inheritance and invest it into a non-registered investment account (how you invest the money is actually the easy part and perhaps a discussion for another day). This account can act as future retirement savings, emergency fund, etc.

2) Payback the Past. Take 1/3rd of the inheritance and use it as a down payment on a home, and I would mortgage the remaining amount.  The funds that you are currently using for rent can now be used to pay down the mortgage.

3) Live for the Now. The final 1/3rd of the inheritance I would use to go on an amazing trip, buy a sports car, see the world, cross something off your bucket list, make a charitable donation to your parent’s favorite charity, upgrade your education. Think outside the box. You may not get another chance in your life to do something amazing.  Give yourself permission to follow your dreams. Maybe that is what your parents would have wanted you to do.

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Andrew Fox is a certified financial planner with Fox Wealth Mangement in Calgary.


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