The House of Representatives recently passed the latest COVID-19 relief bill, which means we're one step closer to receiving a third round of stimulus checks.
The new relief bill includes $1,400 stimulus checks for individuals earning an adjusted gross income of $75,000 or less per year, and $2,800 for married couples earning $150,000 or less per year.
For many Americans, this money will help pay the bills or start an emergency fund. But if your finances are already in good shape, you may choose to invest your stimulus check to generate long-term wealth. Here are three investing options you can't go wrong with.
1. S&P 500 index funds
An S&P 500 index fund is a type of investment that contains all the stocks within the S&P 500 index. These companies are some of the largest publicly traded organizations in the U.S, including Amazon, Apple, Johnson & Johnson, and Berkshire Hathaway.
This makes S&P 500 index funds a relatively safe and stable investment. Most of these stocks have a long track record of financial success, and the S&P 500 itself is considered a strong representation of the stock market as a whole. While your investments may experience short-term volatility, the market has historically seen positive returns over the long term.
One of the top S&P 500 index funds to invest in is the Schwab S&P 500 Index Fund (SWPPX). The fund has a rock-bottom expense ratio of 0.02%, meaning that for every $10,000 you invest, you'll pay just $2 in fees per year.
Since the fund's inception, it's earned an average return of around 8% per year. If you were to invest your $1,400 stimulus check right now while earning an 8% annual return, you'd have around $14,000 after 30 years. Keep in mind, too, that this investing method requires zero effort. All you need to do is invest your money and then leave it alone for as long as possible.
2. Dividend stocks
Dividend-paying stocks are investments that pay you to own them. In addition to your normal investment gains, every quarter or year you'll also receive a dividend payment. This is normally a couple of dollars per share, which may not sound like much. But the more shares you own, the more you'll receive in dividends.
In addition, you have the option to reinvest your dividends to buy more shares of stock. This can help your dividend payments grow exponentially. By buying more shares, you'll receive larger dividend payments. Then by reinvesting those dividends, you'll own more shares -- and the cycle continues.
Not all dividend stocks are created equal, so be sure you're investing in healthy companies -- not just companies with high dividend yields. To get started, a good option is to invest in the Dividend Aristocrats. These are companies within the S&P 500 that have each increased their dividends every year for at least 25 consecutive years.
Another option is to invest in a dividend ETF, which is multiple dividend-paying stocks bundled together into a single investment. The ProShares S&P 500 Aristocrats (NOBL 1.50%), for example, is an investment that includes all 65 of the Dividend Aristocrats.
3. Growth ETFs
A growth ETF contains stocks that have the potential for rapid growth. This type of investment can carry more risk because high-growth companies are sometimes more volatile. However, many growth ETFs also contain behemoth tech companies that have experienced explosive growth but are still stable companies.
For example, the Vanguard Growth ETF (VUG 2.73%) includes more than 200 stocks, including Microsoft, Facebook, and Google's parent company, Alphabet. This fund has also earned an average 11% rate of return since its inception in 2004.
If you were to invest your $1,400 stimulus check in this fund earning an 11% annual rate of return, you'd have more than $32,000 after 30 years. This is also assuming you don't make any additional contributions. If you were to save, say, $100 per month in addition to your initial $1,400 investment, you could end up with more than $270,000 in the same time period.
Investing in the stock market is one of the best ways to build wealth over time, and you don't need to have a lot of money to get started. By investing your stimulus check wisely, you can help your money reach its full potential.