Recently, lawmakers passed a $900 billion relief package that includes, among other provisions, boosted unemployment benefits, a second round of Paycheck Protection Program loans for hard-hit small businesses, and direct stimulus checks in the amount of $600 for eligible adults and children.
On the one hand, that’s good news. At several points during the year, direct stimulus checks were taken off the table in the course of lawmaker negotiations, so the fact that they made it into a final bill means Americans will now get their hands on the money they need and deserve. On the other hand, those $600 payments are just half of the amount Americans received under the CARES Act, which was passed back in March.
Image source: Getty Images.
If you’re disappointed in your $600 stimulus check, you may not have to settle for that amount alone. Invest that cash wisely, and it can turn into way more than $600 over time.
Put your stimulus cash to good use
Let’s be clear — if you’re struggling financially and need your stimulus money to pay for immediate expenses or essentials, then you should not be investing that cash. Similarly, if you’re without a healthy emergency fund — money to pay for unplanned expenses or get yourself through a period of unemployment — then you should stick your stimulus cash in the bank (or leave it there if it comes via direct deposit) to buy yourself some protection.
But if you’re in a good place financially and you don’t need your stimulus money to address your near-term needs, then investing it absolutely makes sense. And doing so could help it grow into quite a sizable sum.
The stock market has historically delivered around a 9% average annual return, so if you invest your money in stocks and let it sit for 10 years or longer, it’s fair to assume that your portfolio will generate a 7% return, since that’s a bit below the market’s average. If we go with that number, here’s what your invested $600 could become over time:
|
Leave $600 Invested For This Many Years… |
And it Will Grow Into This Sum (Assumes an Average Annual 7% Return) |
|---|---|
|
10 |
$1,180 |
|
20 |
$2,322 |
|
30 |
$4,567 |
|
40 |
$8,985 |
|
50 |
$17,674 |
Table and calculations by author.
As you can see, if you’re in your 20s and you invest your $600 stimulus, leave it alone for 50 years, and let it grow, you have the potential to turn it into $17,674. That’s pretty impressive.
If you don’t know much about how to invest in stocks and don’t have the time or mental bandwidth to learn how to research companies individually, the solution is simple — put your stimulus cash into index funds. Index funds let you invest in the broad market without having to do a ton of legwork, and they’re a good option for beginners who want to put their money to work quickly.
While a $600 stimulus check may be disappointing, especially if you were expecting twice that amount, you do have the potential to grow that windfall into a larger sum. If you don’t need the cash for other purposes, open a brokerage account and put it to work. Or, use it to fund your IRA and invest it for retirement. Either option is a good way to make the most of that money.