It is no secret at this point that the coronavirus has had a major impact on both the economy as a whole and on an individual level. Many people have had their hours at work cut or even lost their jobs due to social distancing and stay-at-home orders. Unemployment numbers have skyrocketed during this time and continue to rise as the virus maintains its stranglehold on the economy.
This fact has led the government, in late March, to pass measures that give $1,200 to those who qualify financially.
According to the IRS, individuals who earned under $99,000 on their adjusted gross income from their previous tax returns are eligible for a stimulus check, with those earning less than $75,000 eligible for the full $1,200.
At the time of writing, around 130 million Americans will have received their checks. That has left many out in the dark as to when and where they will be receiving their money, but that isn’t what this article is about.
Here, we are going to discuss what your best options are when it comes to investing your stimulus check. For those purposes, we are going to assume that you have already paid all of your necessary bills and the stimulus check doesn’t need to go toward those needs.
Definition of Investing
Investopedia states that investing is the allocation of resources, usually money, with the expectation of generating income or profit in the future.
Most people think of investing as buying shares of companies in the stock market or privately. Some of us choose to invest in tangible assets, such as real estate or precious metals. You can also invest your money in other currencies, such as the euro, yen, or even bitcoin.
In this article, we are going to stretch the definition of an investment into new realms that you may not have considered an investment before. But keep an open mind, there is more than one way to get a return on your stimulus check.
Now that we have an understanding of what investing is, and can be, let’s get into your options.
Pay Off Credit Card Debt
You may not consider paying off credit card debt as investing, but I would argue the contrary. In fact, I would argue that paying off your credit cards is one of the only ways to guarantee a return on your money out there.
Credit card interest is compounding interest that accrues daily based on your average daily balance on that card. We often forget that compounding interest works in the negative direction as well as in the positive (which we will discuss in a bit), so by paying off that credit card debt, we are essentially able to capture that interest rate for ourselves by not adding it to our credit card balance.
So, if you have credit card debt, this is the first place you should consider investing your stimulus check.
Secure Your Finances/Emergency Fund
Once you have paid off any credit card debts that you may have, the next financial place you should look to invest your stimulus check is in your emergency fund.
If this pandemic has taught us anything, it is that you never know what the future holds. So putting your money into a savings account or shorter-term CD is not a bad idea.
Most experts agree that you should have anywhere from three to six months’ worth of living expenses in an emergency fund, and popular financial guru Dave Ramsey is no exception. He breaks it down for you depending on how much you earn as a household and how much of your income gets routed to essential expenses.
Some of you might cringe at the idea of putting your money into a savings account. You might even be screaming about how your savings account generates less than half a percent of interest on your money. But there are banks out there that still pay over 1% interest, such as Ally Bank or Discover.
While a 1.5% yield on your money may not sound like a whole lot, it does provide you with security and peace of mind knowing that your stimulus money is safe and growing, albeit very slowly. It also keeps cash on hand should you find an investment later on that you really want to jump on.
Extra Mortgage Payment
Next to credit card debt, paying an extra mortgage payment is the lowest-risk thing you could do with your stimulus check. It is no risk.
While you won’t see a great return on your investment from this, making that extra payment can cut months off the back end of your mortgage, depending on how much you owe on your home.
The Stock Market
There are many different ways that you can invest in the stock market, and we are not going to go into all of them here. Some are riskier than others, but with that risk comes the opportunity for higher gains on your stimulus check.
The Power of the Compound
One of the most powerful tools in investing is the power of compound interest. This is simply taking any interest that you earn on an investment and reinvesting it, allowing your earned interest to earn interest on itself—hence the term compounding. One of the most successful investors of all time, Warren Buffet, swears by this power and has used it to become one of the wealthiest people in the world.
Purchase a Stock Market Tracker
It is no secret that the stock market return, on average over its history, is around 10%. This average is not taking any single stock into account but instead market trackers, such as the Dow Jones Industrial Average or the Standards and Poor 500. These are not the only trackers, just the most popular.
While it would take significantly more than your $1,200 stimulus check to purchase all of the stocks in one of these market trackers, you can purchase an exchange-traded fund, or ETF, that follows the overall market. Here are some of the top picks from a popular investing site.
Defensive Sector Stocks
The defensive sector of the stock market encompasses many companies but can generally be classified as those companies that are engaged in the utilities, healthcare, and consumer goods aspects of an economy. Such companies include Procter and Gamble, General Electric, Gilead Sciences, and Coca Cola (none of which are recommendations, per se).
Many of the companies in this sector have seen little to no decline during this crisis. Some companies have even seen gains made since the virus broke out since they have supplied aid to those in need, all while still turning a profit.
It goes without saying, but people are always going to need a roof over their heads. They are going to need food on their plates, and they are going to need healthcare. These necessities make the defensive sector a great place to invest your stimulus check.
By definition, dividend aristocrats are companies in the S&P 500 that have paid, and raised, their dividends for 25 or more consecutive years.
While many of these aristocrats don’t pay the highest possible dividends that are available in the stock market, the sheer fact that they have paid their dividends for such a long period makes them a very wise place to get a return on your stimulus check. Not to mention that they have increased the dividend year over year.
You can elect to do your due diligence of that list provided above and pick a couple of these exclusive companies that are to your liking, or you could find an ETF that tracks the aristocrats just like the ones that track the overall market.
No matter which way you decide to go, investing your $1,200 check here is a great decision to make and takes advantage of those dividends compounding over time.
Purchase Real Estate
OK, you may be thinking to yourself, “How the heck am I supposed to purchase real estate with only $1,200?”
Well, I am not suggesting that you go out and try to find a piece of property that you could get for $1,200, or even put $1,200 as a down payment for. What I am talking about here are REITs.
Real estate investment trusts, aka REITs, offer some of the best dividend returns available. There are a few different types of REITs that you can invest in, which take advantage of the different sectors of real estate. Some invest solely in residential real estate, some only do commercial, and others are mortgage-based.
REITs have taken a good beating since this whole disaster started but will inevitably bounce back, making this a great place to put your $1,200 stimulus check to use.
So you don’t have to go out and specifically purchase bitcoin. You are still advised to do your own due diligence, but I have a feeling that cryptocurrencies are going to do very well over the coming months/years.
As the world continues to print more and more paper money, the money itself loses value. Bitcoin, on the other hand, has a limited supply, which means that when more people want it, the price will rise. That’s just simple supply and demand at work.
Cryptocurrencies stand to gain a lot of ground due to this fact and should see a fairly significant rise as currency around the world continues to decline in value.
There are multiple metals that one can choose to invest in, the most popular being gold, silver, platinum, and copper. When it comes to investing in these precious metals, you can elect to purchase stocks or physically buy the metal itself.
Purchasing precious metals stocks could be an entire article itself. You can buy individual stocks of companies that mine, refine, and sell them; you can purchase ETFs that track the price of precious metals; or you can even purchase options in precious metals.
Many people like to invest in precious metals by actually getting the tangible asset of a coin or bullion bar. People who do purchase the physical metal need a place to store them safely, like an at-home safe or a safety deposit box at a bank. While the physical metals are great for investors who are expecting the worst, they can be extremely cumbersome and are illiquid.
At the time of writing, an ounce of gold costs about $1,700, which is more than your stimulus check would allow you to purchase. So you would have to purchase coins valued around $55 per gram. While you pay slightly more per ounce when you purchase as coins, they are much easier to store in an at-home safe.
While gold may not have the upside of some of the other ways that you can put your $1,200 stimulus check to use, it does offer investors a sense of security in unstable times such as this.
Adding value to your home can be a great investment in one of your largest assets. There are many things that you can do around your home that will add value when it comes time to sell, as well as provide value while you live in the home. You may be surprised by the many upgrades that your $1,200 stimulus check will allow you to accomplish.
Invest in Yourself
Remember earlier in this article I mentioned us stretching the definition of what an investment is? This section is dedicated to investing your stimulus check back into yourself, as well as getting some return on that money in unconventional ways.
Continuous, life-long learning is an almost necessity for success in today’s constantly shifting economy. Learning new things not only expands your knowledge but can also allow you to engage in life in new ways.
There are online platforms available to learn a new skill—or even an entirely new trade. Some are free, some are subscription-based with monthly or annual charges, and others are pay-by-the-course. Others even offer accreditation, just as you would receive if attending universities in person.
One of the best things about this continuing education is that it is only going to cost a fraction of your $1,200 stimulus check. This means that you can learn a new skill and then have some money left over to use to put it into practice.
Think of all the possibilities!
Take Care of Your Health
It is no secret that becoming overweight or obese can be very harmful to your health. Not only is being obese bad for your health, but according to Forbes, it can hurt you financially, as well.
Many out there rely on a gym membership to get their exercise and remain healthy. But with gyms around the country being closed due to the coronavirus, our health has become a growing concern. Fortunately, you can take your $1,200 stimulus check and put together a pretty nice home gym for yourself.
With the average monthly gym membership costing about $58, by using your stimulus check to create a home gym, you’ll be saving money within two years.
Going to a gym does have its advantages, though. Gyms offer you access to almost any type of exercise equipment that you could imagine—but are most of those necessary? They give you access to personal trainers, as well—but that is an extra cost on top of the already expensive membership.
Maybe what you miss about your gym membership are the classes. Guess what? Almost all of them can now be taken online.
Besides the savings in membership fees, what are some advantages of a home gym? Forget the commuting back and forth from now on. The equipment you want is ready for you right when you want to use it, and you know that nobody else’s germs are all over it.
These are just a couple of advantages.
With the health and financial benefits taken into consideration, it is easy to see how using your stimulus check to create a home gym is a great investment. I mean, what would be the point of making conventional investments with your stimulus check if you aren’t around to reap the rewards?
For those with an ample amount of space, you could put together all of the major equipment that you would find at a corporate gym and tailor it to your specific preferences. If you don’t have an ample amount of space in your home, you might shoot for an all-in-one type piece of equipment.
Some of us have almost no extra space, though. Don’t worry, there is a solution for you, too!
Elect to get a set of kettlebells. There are plenty of kettlebell exercises that focus on all different areas of your body. Just this simple piece of equipment will keep you healthy your entire life.
As you can see, no matter which route you go, your $1,200 stimulus check is more than enough to whip you into shape and keep you that way throughout the pandemic and beyond.
Invest in Your Community
Now we’re starting to get extremely loose with our definition of investment, but that doesn’t mean that we should discount this section. Having the means to be able to give back to those around us should be something that we all strive for in our lives.
If you have a solid emergency nest egg, several diversified investments, a home gym that rivals Gold’s, and are already on a journey of lifelong education, you can seriously consider donating your stimulus check to help those who are truly hurting during this time.
Larger non-profits and local food banks would be a great place to start. In some cases, you could walk right next door with a bag full of groceries and provide an out-of-work family with some much-needed sustenance.
Put It to Good Use
There are many options for you when it comes to how to invest your $1,200 stimulus check. You will have to take a good look at your situation and figure out which one is best for you.
Remember, you don’t have to put all of your eggs in one basket either. Feel free to spread that stimulus money around to more than one type of investment. Whatever you choose, do it in good spirit and good health.
What are your plans for your stimulus check?
Let us know in the comments below.