Please ensure Javascript is enabled for purposes of website accessibility

3 Questions to Ask Yourself Before You Invest Your Stimulus Check

By Christy Bieber - May 10, 2020 at 7:12AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You don't want to make the wrong choice and end up with regrets!

If you're like most Americans, you've already received COVID-19 stimulus money or will be getting it soon. Valued at $1,200 per qualifying adult and $500 per eligible dependent, your coronavirus payment could help you grow your wealth -- if you invest it. 

But while the stock market volatility caused by COVID-19 presents some great buying opportunities, putting your money into the market isn't the right choice for everyone. If you're considering investing your stimulus money, you must ask yourself these three essential questions first. 

Man sitting in front of coins and piggy bank.

Image source: Getty Images.

1. How big is your emergency fund?

Financial security starts with an emergency fund, even in the best of times. A job loss, unexpected medical bills, or other surprise expenses can have catastrophic financial consequences if you don't have the funds to cover them.

Unfortunately, millions of Americans live without the recommended three to six months of emergency savings. If you're one of them, using your coronavirus stimulus money to save for surprise expenses could leave you far more prepared for life's uncertainties.  

Even if you think you're financially secure right now, the long-term fallout of coronavirus remains unknown. Do yourself a favor and prepare for the worst by putting your money into a high-yield savings account where it's accessible if you need it. 

2. Will you need the money in the next five years?

The stock market has historically produced around a 7% annual return -- but remember that's an average. In some years, the market may go down substantially, while in other years you may see much more impressive gains.

Because you never know when stocks will hit rock bottom or when a recovery will begin, investing money you'll soon need is a high-risk strategy. If you invest in a volatile market and it turns out you need the cash next month, you could end up locking in losses if you're forced to sell during a downturn. 

If you can stick it out for five years and you've made sound investment choices, chances are good you'll be able to walk away with at least some gains when you need to cash out. You need to make sure you can give yourself that time to reduce your risk. 

3. Do you have a sound investment strategy?

When "black swan" events such as the coronavirus happen, it seems like an opportunity to make a quick buck. Unfortunately, buying with the hope of short-term gains is usually a recipe for disaster, as get-rich-quick plans are rarely well thought out and often don't pay off. 

If you have a comprehensive plan for your portfolio, take your time to research investments, and purchase assets you plan to hold over the long term, there's a good chance you'll more than double your stimulus funds over time

But if you think you can double your stimulus money by next year because you're buying based on rumors about coronavirus drugs or vaccines, you'll probably waste the funds the government has given you. 

Invest your coronavirus stimulus check only if it makes sense for you

Coronavirus stimulus payments can help you become more financially secure, but you need to make smart choices about what to do with the money. The right decision about whether to invest will depend on your answers to these three questions, so take the time to think about them before you jump in.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.