I don't know the best way to invest a large sum of money (although it's a nice problem to have) and I'm sure if you asked 10 people you would get 10 different opinions. I am no expert but I'll share a few things I have learned.
- if you haven't maxed out your RRSPs it might be something you want to look into. You get the tax savings right away and it might make sense if you are currently in a higher income bracket. However I do believe if you have a big chunk it might make sense to put it in over the space of a few years to get the maximum tax deduction. Your money then grows tax free in an RRSP. You have to remember though that the money is then taxed when you take it out after you retire. If you continue to be in a higher tax bracket after the age when you have to start taking out money (either because of other investments or continuation of work) you will be taxed at that level on money coming out of your RRSP.
- I like the idea of maxing out TFSA's. The difference with TFSA's is that you don't get the tax advantage when you put money in but then that money grows tax free *and* you don't get taxed on it when you take it out.
- Until now I've been very conservative and put my money into GICs. This was great 10 years ago when the interest rates were higher but now it's hardly better than a savings account. If you are thinking of risk-free GICs and are investing a large sum you may want to think about 'laddering' your investment. This means if you have, for example, $9,000 you might put $3,000 each year into a 5 year GIC for three years. This means that you have chunks coming available for investment again at different times to take advantage of any increases in interest rates.
- I've been starting to teach myself about more risky investments that also have the possibility of higher returns. I know DR promotes mutual funds but I believe in Canada the fees you pay on mutual funds are much much higher. Studies have shown that ETFs (exchange traded funds) have a better track record. For a quick definition an ETF it's set up to basically track the exchange (like the Toronto Stock Exchange) so you get the same return that the market does overall. This is in contrast to mutual funds where they are managed to try to 'beat' the overall return of the stock exchange. The advantage of ETFs is that they often perform better *and* there are next to no fees associated with them because they aren't being actively managed. It's reeeeeally hard to get your bank to talk to you about ETFs because they don't make money off of them. I have to say that I'm not invested in mutual funds or ETFs yet - just learning about them myself.
- Final thought, GICs or mutual funds or ETFs can all be held within RRSP portfolios or TFSA portfolios or not in either of those. I've heard some people say that it makes more sense to hold risk-free growth investments (like GICs) in your RRSP or TFSA because you don't get taxed on the growth and there is no chance of losing money. You may want to hold more risky investments outside of a RRSP or TFSA because if a particular investment isn't doing well and you want to sell it at a loss you can claim that loss on your taxes and get a bit of a tax break. You can't do that with investments inside of an RRSP or TFSA.
Okay - that's all a bit overwhelming but hopefully it gives you a good few points to start thinking about what might make sense for you. If you have a large sum and want to talk to a real expert (which I'm not at all!) I would suggest looking up a fee-only financial planner in your area. You pay them up front but it means that they give you the best advice for you instead of trying to sell you thinks that make them the most money.