COVID-19 stimulus checks worth up to $1,200 per adult and $500 per dependent have now been delivered to most Americans. These direct payments aimed at helping people cope with the effects of coronavirus are a modest sum of money. However, for those who didn't need the cash to cover immediate expenses, these payments present opportunities.
One of the best opportunities the COVID-19 checks offer is the chance to invest. But only a very small minority have taken advantage of that option. In fact, according to a recent YouGov poll, just 2% invested their stimulus money for retirement, and only 1% invested their funds outside of retirement accounts.
Investing would provide the chance to earn returns on the money and turn it into much more. And while it's not the right option for everyone, if you're still holding onto your stimulus cash, it just might be the best move for you to make.
Why investing your stimulus money could be smart
While you have lots of things you could do with your stimulus payment, few of them enable you to hold onto the money and grow your wealth over the long term. Investing does. In fact, if you invest your money in the market, it can go to work for you, and the magic of compound interest could enable this one-time windfall to grow exponentially.
How much could you turn your stimulus payment into? More than you'd think, given enough time and smart investments. A single $1,200 stimulus payment could actually turn into almost $10,000 in 30-years time, assuming a 7% average annual return on investment (ROI).
And while there are risks to investing, and there's a chance you could lose the money, making smart investments helps you alleviate this potential downside. For many, this means investing in an index fund that charges low fees and that tracks the performance of the market. But for others that might mean researching your options and finding a stock it's smart to buy amid the market volatility.
When does investing your money not make sense?
While investing your stimulus payment gives you the chance to turn it into more money in the long term, putting your money into the market isn't necessarily the right approach for everyone. The funds were made available to help cope with financial difficulties, and if you need the money to pay bills, there's nothing wrong with using it that way.
Investing your money may also not be the best move if you don't already have an emergency fund, as you need access to liquid cash during these times of unprecedented economic turbulence. Although your emergency fund should ideally contain enough money to cover three to six months of living expenses, even a small amount of savings can help you be better prepared. Without it, you could be forced to go into debt or withdraw your invested funds, neither of which are good outcomes.
And finally, if you have high-interest consumer debt, such as credit cards or payday loans, chances are good the return on your investment from paying off that debt will be greater than the ROI you could get in the market. So you may want to think about using your stimulus funds to make a big payment on what you owe.
Outside of these situations, if you have no pressing economic needs, you likely won't regret investing the money the government gave you to shore up your future.