In the fourth installment of our advice series, one TD executive reflects on a decision to cash out investments to pay for a beach vacation rather than take on debt.
By Lisa Driscoll
Senior Vice President, Personal Lending, Merchant Solutions and Financial Literacy
Looking back, I remember the sun, the sand, and the fruity drinks from the all-inclusive bar, but most of all I remember the very first time I went scuba-diving.
There were six of us altogether, on our first girls beach vacation to the Caribbean. I was so excited for the trip I bought new everything: flip flops, bathing suits, and sundresses. I knew this was a trip I was going to remember.
The only question I had left was: How was I going to pay for it?
I was just a few years out of school, and already working at my first full time job at TD. I was lucky enough to be earning a decent living, and I'd even started to invest some of the money. Soon enough, I realized that if I cashed in my investments, I would have enough money for the trip.
Growing up, my parents were pretty conservative with their money. I remember watching my parents sitting at the kitchen table with a stack of white envelopes. My mother would go to the bank to cash my father's paycheques – he worked two jobs to provide for us – and then my parents would sit down together and divide the money into those envelopes, putting aside money each month for the mortgage, activities for the kids, groceries, and what savings they could for the future.
I vividly remember celebrating as we burnt the mortgage papers and was taught that borrowing money was something to be avoided. My father believed you didn't buy what you couldn't afford, and you certainly didn't borrow money on a line of credit to do something fun like take a trip to sit on a beach and enjoy drinks with tiny umbrellas.
So, to pay for the trip, I cashed in my investments, to the tune of a few thousand dollars. It was my first time ever going to the Caribbean, and I knew it would be worth every penny.
That trip was many years ago, and I hadn't thought about my decision to cash in those investments for decades.
That was, until I saw my step son recently and we were talking about money and life. Right now, he's in the same position I was all those years ago. He's working in his first job, making good money for his age, and he's been investing what he can. But I can see he's already thinking about using his investments to fund purchases in the short term.
But now that I'm older, wiser and I understand the value in investing for the long-term, I can see that he'd be better off leveraging a line of credit while leaving his investments where they are, and then paying off the line of credit over time. That way, he can still enjoy himself in the short-term, while saving for his future.
The whole exercise got me thinking. If I hadn't sold those shares back then, what would they be worth today? I knew which stocks I sold, what they were worth at the time, and how many I had sold, so I looked it up online.
When I saw the number, I nearly fell out of my chair.
In this particular case, the stock had split several times and had increased significantly in value. Of course, this isn't something that happens to all stocks, but had I not cashed out when I did, the value of those investments today would be worth well over 10 times what they were back when I cashed them in.
If I could go back and do it all over again, I would have taken a much more holistic view of my finances, and a more fulsome look at my financial picture.
There was great wisdom in my father's advice of not buying something you can't afford, but in the long run, I would have likely been better off to pay for the trip on a line of credit, continue contributing to my investments, and had a plan to pay off the line of credit over time.
If I had done that, I could have used the money from those investments to contribute to much larger things, such as a down payment for a first home, a wedding, or my retirement.
I'll always have the memories of my friends and I laughing together on the beach during that trip. But it sure would be nice to have those memories, and those stocks still in my portfolio, too.
The statements and opinions contained herein are those of the author and do not necessarily reflect the opinions of The Toronto-Dominion Bank.