Want to get the most value out of your stimulus or tax return? Use your return to build a diverse investment portfolio — you’ll be glad you did.
Research indicates a diverse investment portfolio drives long-term wealth. It also shows you don’t need a lot of money to start earning big. Case and point: the cryptocurrency push that began last year.
Cryptocurrency is not backed by a central bank or government. As such, it’s not subject to fees that financial institutions typically attached to other currencies. Some experts also note crypto offers greater security than other currencies. They even point out that crypto is less likely to be manipulated since it is not backed by a central bank or government.
Of course, crypto is just one of many investment options at your disposal. Here are three additional options to consider as you look for ways to invest your stimulus or tax return.
1. Gold
As of March 2021, gold had a value of over $1,700 per ounce. Comparatively, the value of gold was under $100 per ounce about 50 years earlier. The bottom line: gold is a highly sought-after precious metal. Therefore, people are willing to pay a lot for gold, regardless of the current state of the global economy.
One of the best options for investing in gold is to purchase jewelry. If you plan to do so, however, you should learn about the different types of gold. Gold in its purest form tends to be soft, bright, and dense. Meanwhile, alloys can alter the appearance of gold and affect its value.
Don’t forget to learn about the different colors of gold, too. Gold alloys can come in yellow, rose, green, grey, black, and blue. People have individual preferences when it comes to which alloy colors they like. So, one person may prefer rose gold, while another may like grey gold. Fashion trends can impact the most popular gold color. If a fashion model wears a gold necklace in a certain color on the runway, he or she may drive demand for gold in that color in the weeks that follow.
In terms of gold investments, you should consider the metal’s purpose and quantity as well. The properties of gold vary. For instance, if gold is blended with a soft metal like palladium, it may be a great option for gemstone settings. Gold quantity is measured in karats. If gold has a high karat, it will be more durable than many other options. At the same time, this gold will be more expensive than comparable options, too.
2. IRA
An individual retirement account (IRA) lets you save for retirement tax-free or on a tax-deferred basis. It can also supplement retirement savings earned as part of an employer-sponsored plan. Plus, an IRA can provide you with access to a wide range of investment options you may struggle to find elsewhere.
There are three types of IRAs: traditional, Roth, and rollover. A traditional IRA lets you make contributions that you might be able to deduct on your tax return, with earnings that can grow tax-deferred until you make a withdrawal. Roth IRAs work in a similar fashion to traditional IRAs. Perhaps the biggest difference between them: a Roth IRA lets you make contributions with money you’ve already paid taxes on. Lastly, there’s a rollover IRA, which is a variation on a traditional IRA. In a rollover IRA, you “roll over” money from a qualified retirement plan into your IRA.
You can use a free IRA calculator to establish a plan to save for retirement. The calculator can help you determine how much you are eligible to contribute to an IRA annually.
Meeting with a bank or brokerage firm can also be beneficial. This gives you an opportunity to get expert advice on whether an IRA is the right option for investing your stimulus or tax return.
3. 401(k)
A 401(k) is a retirement account offered by an employer. It lets you use automatic withdrawals from your paycheck to save for retirement. In many instances, an employer will match what you contribute to your 401(k) to help you maximize your retirement savings.
Like an IRA, traditional and Roth 401(k) plans are available. A traditional 401(k) is set up by an employer and provides employees with multiple investment options. Employee contributions to this plan are tax-deferred. A Roth 401(k) works in nearly the same way as a traditional option. A key difference between the two: employee contributions to a Roth 401(k) are not tax-deferred.
You may want to consider both 401(k) and IRA plans, according to Capitalize. There is a lot to like about both types of plans. If you learn about each option, you can decide if one or both is right for you.
How to Invest Your Stimulus or Tax Return
Now that you know about different investment options, you need to map out how to use your stimulus or tax return. With careful planning, you’ll be well-equipped to achieve your investment goals.
Before you start investing, conduct a financial checkup. Review your finances, pay off any debt, and put aside money for emergencies.
Next, check out a variety of investment options. Along with crypto, gold, IRA, and 401(k) options, you may want to consider silver dollars and outside-the-box investments. Learn as much as you can about each investment option, so you can make an informed selection.
Once you make an investment, strive for constant improvement. Ongoing investment research and monitoring can help you continuously boost your investment returns.
Finally, take a deep breath and try not to panic. Any investment has ebbs and flows. Stay the course, and over time, you can realize the full value of your investment.
