3 great ways to invest your $1,400 stimulus check
Jhe House of Representatives recently passed the latest COVID-19 relief bill, which means we’re about to receive a third round of stimulus checks.
The new relief bill includes stimulus checks of $1,400 for people 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 bills or create an emergency fund. But if your finances are already healthy, you can choose to invest your stimulus check to generate long-term wealth. Here are three investment options you can’t go wrong with.
1. S&P 500 Index Funds
A S&P 500 Index Fund is a type of investment that contains all stocks in the S&P 500 Index. These companies are among the largest publicly traded organizations in the United States, including Amazon, Apple, Johnson & Johnsonand 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. Although your investments may experience short-term volatility, the market has always seen positive long-term returns.
One of the best S&P 500 index funds to invest in is the Schwab S&P 500 Index Fund (NASDAQMUTFUND: SWPPX). The fund has a lowest expense ratio of 0.02%, which means that for every $10,000 you invest, you will only pay $2 in fees per year.
Since its inception, the fund has generated an average return of around 8% per year. If you were to invest your $1,400 stimulus check now while earning an 8% annual return, you would have about $14,000 after 30 years. Also keep in mind that this method of investing requires no effort. All you have to do is invest your money and leave it alone for as long as possible.
2. Dividend shares
Dividend-paying stocks are investments that pay you to own them. In addition to your normal investment earnings, you will also receive a dividend payment quarterly or annually. It is normally a few dollars per share, which may not seem like much. But the more shares you own, the more dividends you will receive.
Additionally, you have the option of reinvest your dividends to buy more shares. This can help your dividend payouts grow exponentially. By buying more shares, you will receive larger dividends. Then, by reinvesting those dividends, you will own more stocks and the cycle will continue.
Not all dividend-paying stocks are created equal, so be sure to invest in healthy companies, not just high-yielding companies. To start, a good option is to invest in the Dividend Aristocrats. These are S&P 500 companies that have each increased their dividends every year for at least 25 consecutive years.
Another option is to invest in a dividend ETF, which consists of several dividend-paying stocks bundled into a single investment. the ProShares S&P 500 Aristocrats (NYSEMKT:NOBL)for example, is an investment that includes the 65 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 giant tech companies that have grown explosively but are still stable companies.
For example, the Vanguard Growth ETF (NYSEMKT: VUG) includes over 200 actions, including Microsoft, Facebookand Google’s parent company, Alphabet. This fund has also earned an average rate of return of 11% since its inception in 2004.
If you were to invest your $1,400 stimulus check in this fund with an 11% annual rate of return, you would have over $32,000 after 30 years. This also assumes that you don’t make any additional contributions. If you were to save, say, $100 per month on top of your initial investment of $1,400, you could end up with over $270,000 over the same 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.
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