Though the economy has been holding steady for some time in terms of the unemployment rate and stock market gains, lingering high inflation has caused strain on many Americans’ wallets.
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With a new presidential administration taking over the White House, it’s not unheard of that future stimulus could be in the works, especially to offset the high prices of things like groceries (eggs, anyone?), housing and healthcare.
If a future stimulus check comes your way, you might be wisely tempted to invest it, to make that money grow, especially if you weren’t expecting it.
According to Christopher Stroup, CFP and owner of Silicon Beach Financial, if you do, be careful not to invest it in the following ways.
With money burning a hole in your bank account, you might be tempted to jump at a suddenly trending stock. However, Stroup warned against this.
“Investing in volatile or ‘hot’ stocks can be tempting, but it’s risky. Stimulus checks are better used for stability or long-term growth rather than short-term, high-risk investments that could result in significant losses.”
Put that money into a high-yield savings account or a certificate of deposit (CD) until you can decide on a safer stock investment like an ETF.
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Cryptocurrencies may seem to be constantly gaining in value, but Stroup warned these digital forms of currency are not a sure thing.
“While crypto can offer huge gains, it’s highly unpredictable.”
Instead, with a limited amount likely to come from a stimulus check, the risk of losing everything outweighs the potential reward, he warned. “Save or invest the money in more secure options first.”
If extra money pushes you toward the idea of investing in real estate flipping, you might want to think again.
“Real estate requires substantial capital for both the purchase and renovation process,” Stroup pointed out. With a stimulus check, you won’t have nearly enough to handle the upfront costs. Keep in mind that the average stimulus payment may only range from around $500 to $1,400 (if you use recent years’ pandemic stimulus as an example). Moreover, market volatility adds extra risk to real estate flipping.
While mutual funds can be a great place to plunk some extra cash, Stroup cautioned that you make sure you’re not investing in funds with excessive management fees as they can erode your returns over time.
