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 about 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.

—Eric

A: I am sorry to hear about your parents, Eric. You’ll find your answer in the lifestyle you want. Let’s walk through a few simple options.

What would happen if you take the $500,000 and invest it all in the markets, leaving it there for the next 30 or 35 years? So each year maximizing your TFSA and, depending on your income, adding to your RRSPs? Your retirement will likely be taken care of. No worries. Everything you earn between now and then can go toward you and your living expenses.

Where do you want to live? You can continue to rent, allowing you to invest all of the $500,000. There’s nothing wrong with renting and it has been argued in this book that renting can be more advantageous than owning.

Would you rather live in a house? For a lot of people home ownership is a forced savings plan that’s worked well. Does homeownership fit with your current lifestyle? Do you plan to stay in Toronto? Do you want the work of maintaining a house?

Have you considered a rental property? My daughter just took a year off university to live in St. Johns, Nfld. She’s renting a room from a young engineer. He lives at the house and rents out three rooms to female students. That’s a good lifestyle/wealth building investment if you don’t mind the work and want some company.

One advantage to buying a rental property is the use of leverage, using a loan to help with the purchase. You don’t have to put the full $500,000 against the property, which leaves you some money to invest elsewhere, and you’ll get some tax deductions on the money borrowed.

What if you invested the $500,000 and then a few years later decided to buy a house with a $500,000 mortgage? Would you keep the investments and pay off the mortgage over time, or sell the investments and be mortgage free?

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