After Congress reached an agreement about a new coronavirus relief bill in December, the IRS has been sending out millions of stimulus checks.
Under the CARES Act, which passed in the spring of 2020, Americans were entitled to receive up to $1,200 each in stimulus payments. This time, though, the maximum you can collect is $600 per person.
Although the stimulus checks are smaller this time around, there are still ways to make the most of this money. If you can afford to invest your check wisely, you could potentially double your cash.
Image source: Getty Images.
Why invest your stimulus check?
First of all, it's important to note that you should only invest money you won't need for the foreseeable future. Many people are relying on stimulus checks just to pay the bills, and if you're one of them, you're probably better off not investing this money right now.
However, if you already have a well-stocked emergency fund and can afford to keep your stimulus money in the stock market for several years, investing this cash could result in substantial rewards down the road.
Say you invested your $600 stimulus check today in an S&P 500 index fund. Historically, the S&P 500 has earned an average rate of return of 10% per year. But to err on the side of caution, let's say your investments earned an 8% annual rate of return.
If you didn't invest any additional cash and simply left your money alone, you'd have close to $1,300 accumulated after 10 years. In other words, you could more than double your initial investment simply by leaving your money alone for a decade.
How to see even more growth
Now, earning an extra $700 over 10 years may not sound that impressive. But if you were to make small contributions consistently during that time, you could save significantly more.
Say, for example, you invest your initial $600 now, but then you also save $100 per month for the next 10 years. Assuming you're still earning an 8% annual return on your investments, you'd have roughly $18,700 saved in that time period. If you were to steadily increase your contributions each year, you could save even more.
Even if you don't have any extra money to save each month, simply leaving your $600 in your retirement fund for as long as possible can result in some serious growth. For example, say you invest your $600 check, and you're earning an 8% annual rate of return. If you didn't make any additional contributions, here's how much you'd have over time:
| Number of Years | Total Savings |
|---|---|
| 0 (Today) | $600 |
| 10 | $1,300 |
| 20 | $2,800 |
| 30 | $6,000 |
| 40 | $13,000 |
Source: Author's calculations. Numbers rounded to the nearest thousand.
Investing in the stock market is one of the most effective ways to grow your savings. If you don't need your $600 stimulus check right away, investing that money can pay off down the road. A few hundred dollars may not seem like much now, but if you invest it wisely, it can give your savings a serious boost.
