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Investment Concerns and Opportunities

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There are investment concerns and opportunities pretty much any way you turn. Healthcare looks great, but what about the costs associated with treatment? Technology is improving every day, but what’s going to happen with possible regulations? Is the FED going to pop our bubble?

Plenty can happen so let’s explore it together.

The FED

The FED doesn’t appear like it’ll stop its asset-buying program and accommodative monetary policy anytime soon, and it said just that in its most recent meeting.

That’s a good sign for the economy and for certain sectors. The industries that find the most favor are those that use heavy borrowing to facilitate growth efforts. These include construction, retail, information technology, transportation, and healthcare.

Commodity Prices

We continue to see a rise in commodity prices. Copper, oil, and lumber are all near record highs. I believe we’ll continue to see a steady increase in the price of copper. Copper is used in electronics, and with the further development of new technology, electric and autonomous vehicles, and green energy…the demand for the metal is just getting started.

Big Tech

Silicon Valley is bracing for possible regulatory troubles. There’s a new head of the FTC and she has her gloves on. Big tech has come under increased scrutiny in a few areas, including content, privacy, and antitrust. This causes investment concerns.

The federal government has a problem with social platforms and some of the content users post on their sites. There’s a thin line these companies walk because they can’t censor speech and they can’t promote speech. But some people post very harmful and hurtful things.

Also, antitrust cases are likely to come in full force because some of these companies are so gosh darn huge. They have so much pull, so much money, and too much market share (in a lot of cases).

What’s more, they no longer hide that they harness user data to make money. How much they sell to other parties and what they sell isn’t entirely known, but their privacy issues are also coming to head.

With all of that said, compliance costs are going to increase. What those companies look like and what they’re allowed to do will likely look different than what it is now. Only time will tell what happens to these companies.

Healthcare

I’m reading and hearing more and more excitement about the healthcare space and the investment opportunities that lie within. The speed at which the globe was able to produce three or four viable and useful vaccines for Covid is incredible. I heard today that it’s the first vaccine to be created in less than 5 years.

The global population is getting older by the day. Not only that, but the baby boomer generation is around retirement age, so they’re going to require more medical attention.

Prescriptions, medical devices, new and improved medical technologies are going to treat and possibly cure more and more illnesses.

Telemedicine looks to be a great investment opportunity. Last year, medical attention was quite high but 90% of that was done in person. Virtual visits, remote monitoring, and in-home testing will grow in popularity.

Investment concerns and opportunities abound, I’m excited for what’s to come in the tech and healthcare spaces.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

What’s The Federal Reserve Going To Do?

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There’s a lot going on in the world right now. Supply disruptions, stimulus payments, excess savings, labor shortages, and infrastructure are all playing a role in economic policy. In today’s post, I want to try and explain how they all play a factor with regard to how the FED determines policy.

Supply disruptions

Inherently, supply disruptions don’t have much to do with how the federal reserve coordinates monetary policy. The biggest supply disruption we have at the moment involves semiconductors.

The wide applicability of semiconductors makes them very important in product development and deployment. What’s more, the number of semiconductors needed just keeps growing.

The bad news is…there’s a supply shortage. That creates upward pressure on price. Not only for the semiconductors themselves but also for the products that use them.

Stimulus payments and excess savings

When Covid hit, the world shut down. People were out of work, so they didn’t spend money. People didn’t spend money, so businesses started losing revenue. In order to prevent total economic collapse, the government sent stimulus checks to qualifying individuals and boosted unemployment.

A lot of people saved this “extra” money and recently started to spend it. Jobs are starting to come back and the global economy is starting to look healthy. Confidence inspires spending. Increased consumer spending is good for the economy.

Labor shortages

Labor has become a big topic of conversation. Not only do we have more jobs available than we have people to take those jobs, but workers are quitting in large numbers. Both of those factors can have a large impact on wages.

Employers are having trouble filling roles. How can they attract applicants? Better wages and benefits? For those that can afford bigger payroll, that’s the avenue they’re using. That puts upward pressure on wages.

I also mentioned workers are quitting in droves. Employees are demanding to be fairly compensated and enough of them are banding together now. Improved benefits and increased wages are becoming more likely.

Wage inflation helps feed the price inflation narrative. The prices for products and services go up because of supply and demand factors. Wage inflation increases due to supply and demand dynamics.

These two inflationary pressures feed on each other. Wages go up so workers can afford more. Prices go up because workers can buy more, and so on.

Infrastructure

News broke about a new infrastructure bill (Source). On top of, already, record-breaking government spending, that’ll juice our GDP numbers for 2021.

I don’t have much else to say about this other than the spending involved will create inflationary pressures AND I’m proud there was bipartisan support for this bill. Not something we see very often anymore, so I’m happy it turned out this way.

The Federal Reserve

With all of that said, what’s the federal reserve going to do? If inflationary pressures are as hot as they seem, I fear the FED will have no option, but to end their accommodating stance on monetary policy.

They’ve already indicated that a rise in interest rates in Q3 or Q4 of 2023 is likely. They claim that they will let inflation run past their 2% target but by how much? At one point do they say enough is enough?

That’s a tough question to answer. I think in this situation, they’re talking bigger than what they’ll actually deliver. It’s all well and good if they say they’re going to let inflation run, but we’ll see what actually happens when that gets here.

Related reading:

Economic Pressures

Employment, Stimulus, Rising Prices

Disclaimer

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Employment, Stimulus, and Rising Prices

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The dynamic of employment changed dramatically because of the pandemic and the stimulus provided to consumers as a result.ww

People were let go from their jobs, especially jobs that didn’t have a way to “work from home”. Factory jobs and jobs in the service industry, for example.

Government Intervention

To combat a declining economy and unemployed workers struggling to make ends meet, the government decided to inject liquidity into the market. They did this through increased unemployment benefits and stimulus payments to those that qualified.

This aid sent to consumers helped out a lot of people, but it didn’t entirely go according to plan. One of the intentions of the stimulus payment was to incentivize people to spend – that’s why a large number of the second payment came via a Visa gift card.

When people spend, the economy does better.

Unfortunately, people saved their stimulus payments, but thankfully the market and the economy didn’t suffer as a result.

Rising Prices

That leads to the predicament we could soon find ourselves in. The economy is doing better. The majority of the United States population has been vaccinated (just a reminder that a majority is anything over 50%). Daily life is starting to return to normal; it’s happening slowly, but we are trending in the right direction.

As people grow more confident in their ability to go out into the world, and they get more confident in the economy and the market, they’re likely to spend some of that savings.

Low rates, decreasing unemployment, and more spending are three legs to likely inflation pressures.

Inflation

Now, I know I wrote about inflation pretty recently (here), but I feel it’s necessary to beat that drum again.

The FED already said that they will be more liberal when it comes to monetary policy. That means they will be more likely to let inflation run hot (relative to their 2% inflation target) for an extended period of time.

What they are doing with that stance, is they don’t want to kill a recovery when it’s just getting started. That’s what happened in 2018 when they raised rates throughout the year, but that increase in interest killed the economic growth and popped a bubble.

Okay, so the recipe for inflation is set, but what does that mean for me?

Honestly, that’s hard to say. We already said that inflation is likely, and in some cases, it’s already here. The question is, how much inflation is too much? This question will be answered by the FED.

And the answer will show itself when they relax their easy monetary policy. Interest rates could go up and the FED’s balance sheet could reduce in size.

At that point, I believe it’s only a matter of time (my hunch is not a lot of time) until the bubble we’ve created pops.

If you’re invested for the long haul, hunker down and hold steadfast. Avoid panic selling. If your time horizon is shorter, soon may be a good time to take some profits and de-risk your portfolio.

Disclaimer

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

What You Need to Know About Solo 401(k)s

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solo 401k

If you’re looking at retirement account options, a solo 401(k) isn’t always on your radar. However, it could be a good choice for a range of professionals, suggesting you’re eligible to open one. If you’re curious about this retirement option, here’s everything you need to know about solo 401(k)s.

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Inflation, Gold, Semiconductors

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There are a lot of moving parts in the economy right now. Inflation has become a concern, people are looking at gold more as a hedge, and there’s a shortage in semiconductors. In this piece, we’ll explore some of those dynamics and what some of the investment implications are.

Inflation

Inflation will most likely increase. Many projections estimate the FED will meet/beat their target of 2%.

I do believe that an increase in goods and services will not affect demand as it would have in the past. Stimulus payments to consumers created enough excess cash that people didn’t mind, or even notice, an increase in prices.

I do realize I’m painting with a broad brush here, and undoubtedly there will be some that will notice the difference. I’m simply stating that demand will not suffer from price creep as it used to, at least while the government continues writing checks.

Gold

We could see another uptrend in gold. There’s a certain recipe that makes the case for a bullish perspective on gold – inflation pressures, increased money supply, and low-interest rates.

The FED continues to supply the market with liquidity with its asset-buying program. An increase in the money supply dilutes the value of the dollar (USD). When the USD decreases in value, typically gold does well.

There is a caveat to that, however. Demand for US Treasury securities is weakening, specifically from foreign investors. To double down on that, foreign investors are net sellers of Treasuries. There have to be enough buyers to meet Treasury issuance, otherwise, the FED won’t have enough “reserves” to inject liquidity into the system.

With regard to low rates, that is a good sign for gold, but it’s also a good sign for equities (companies) with a high tendency to borrow. I’m mainly looking at the technology sector. Especially these unicorns that have high valuations, but low (or negative) profits.

Semiconductors

There’s also a current market disruption at play here…semiconductor shortage. Demand across many applications are at multi-year, sometimes multi-decade, highs. Personal computers, electric vehicles, autonomous vehicles, AI, and the like all use semiconductors.

A semiconductor shortage has many implications:

  • Decrease in production
  • Price increase
  • Nationalist mentality
  • R&D disruption

A decrease in production can hurt the bottom line. It all depends on when the shortage ends. If production reduces enough for a sustained period, adjustments will have to be made by corporations.

A price increase is likely because of supply and demand dynamics. The price of semiconductors will go up, so the price of the products they’re used in will also go up. This could hurt demand for those products and could hurt consumers.

There are a select few companies that supply the majority of the world’s semiconductors. This could have a similar effect as Covid had with regard to supply chain management. Companies relied on global trade and cooperation to sustain their supply chain operations. When countries shut down due to the pandemic, global trade suffered as a result. Countries might shift to manufacturing their own semiconductors instead of relying on supply from trading partners.

Semiconductors are only getting less expensive and more efficient. With a shortage, and possibly less money coming into the manufacturers, it’s possible that this dynamic of cheaper and better plateaus…at least temporarily. It’s also possible that the shortage improves operations and makes the manufacturers more agile. Some countries have a very unique ability to progress, strengthen, and adapt when a roadblock presents itself.

With that said, I believe semiconductors will be a great investment opportunity. Their demand is only going to increase because of the push to provide the world with electric vehicles and clean energy. I would, however, pay attention to the shortage and I might wait until that shortage ends and prices stabilize.

Related reading:

Does Economic Inflation Favor Borrowers or Lenders?

Is Gold a Good Investment?

What You Can Learn from Different Market Environments

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Here’s What Your Children Know About Investing That You Don’t

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what your children know about investing

While younger generations often get a bad rap when it comes to how they handle their finances. A decent portion of that reputation is underserved. In fact, on occasion, younger investors are savvier than their older counterparts. Causing them to make better choices than their parents. If you are wondering what your children know about investing that you don’t. You should keep reading.

Dodging Fees and Other Costs

Overall, younger generations are more fee and cost-conscious than older ones. They don’t just understand that investment-related expenses can hinder their progress. They also know how to find information about the associated fees.

Millennials and Gen Z aren’t afraid to get online and dig into the fine print about what various brokerages or investments will cost them. Additionally, Millennials are particularly value-driven. So they look for opportunities to save whenever they exist.

Thanks to the rise of low-cost robo-advisors, many younger investors have learned that high fees aren’t something they have to accept. That isn’t necessarily true of many older investors, particularly those that have been using the same approach for years, if not several decades. In the latter case, the investors simply settle into the status quo, and that can be costly in the long run. With the former, it’s all about finding the best value, ensuring that more of their money works for them instead of going to fees.

Investing Isn’t Just for the Rich

Investing is often touted as a pathway to long-term financial success. However, outside of retirement plans, a reputation of investing just being for the rich arose. In some cases, this was initially true, as getting access to a broker wasn’t an option for lower-income households. The issue is that the idea remained even as that became less and less of the case.

That myth that investing is only for the rich is often more pervasive among older generations than younger ones, causing some households to shy away from investing outside of retirement plans. Younger generations know that investing is something anyone can do. App-based robo-advisors are an expression of that fact, as they give people a quick, easy way to get started.

Plus, information about investing is usually only a few clicks away, either in the apps or online in general. For Millennials and Gen Z, this further demystifies investing, making it feel even more accessible.

Downturns Can Be Opportunities

During the early days of the coronavirus, stock markets tumbled. Many companies that were classically viewed as solid – and financially inaccessible from a stock-buying perspective – saw the price of their shares drop.

For younger investors, the downturn wasn’t just a crisis; it was an opportunity. Some investors who previously couldn’t afford to purchase certain stocks suddenly could, so they hopped on board with companies they believed would ultimately recover.

Older generations didn’t always view the situation similarly. The closer you get to retirement, the more you tend to focus on portfolio value preservation. In some cases, this led investors to abandon companies that were experiencing hardship, even if the odds of that hardship persisting were relatively low.

Investing Doesn’t Have to Be a Taboo Subject

For many older generations, the idea of having genuine conversations about money isn’t appealing. Money is often discussed in hushed tones, viewed as one of the most private topics in a person’s life.

Millennials and Gen Z don’t necessarily see it that way. Many younger people are comfortable with sharing details about their lives with the masses, thanks to their comfort level with social media. As a result, they aren’t averse to learning about and discussing investing with their peers, something that can work in their favor.

By being open to talking about money and investing, members of younger generations learn from each other. They can find out about mistakes their peers made and opportunities that were seized. The odds of them being pointed to valuable informational resources may also be higher.

Now, it is true that this can also lead to trouble. After all, not all information is accurate or reliable, so it can lead to the spread of misinformation, too. However, treating the topic as if it isn’t taboo is something that older generations could benefit from, as it can create openings for learning from others, getting support, and, ultimately, making better decisions.

Can you think of anything else young children know about investing that you don’t? Share your thoughts in the comments below.

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Editors Note: If you want more on this topic, consider reading Andrew Adam’s Behaviors Of A Millionaire, it’s got a thorough discussion on evaluating securities, which is helpful if you’re looking at selecting individual stocks.

What Are the Tax Benefits for Investing in Small Businesses?

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Since the founding of our country, small businesses have formed the backbone of our economy. Initially, people invested through informal networks that helped create and expand industries. As companies prospered, they also created new ways for people to buy, sell, and invest in small businesses. The federal government recognized the importance of these ventures. So, it enacted laws and tax breaks to encourage further investment from the private sector. If you are looking for new opportunities, these incentives and tax benefits for investing in small businesses could prove profitable for your portfolio.

Reasons for Investing in Small Businesses

Supporting small businesses is an important way you can invest in the local economy. Here are a few more reasons why you should consider backing local business owners and entrepreneurs in your community.

  1. Small businesses create jobs.

Small businesses are more than a small factor driving the American economy. According to the Small Business Administration, they are responsible for approximately 65% of new jobs created since 1995. Furthermore, they employ nearly 60 million Americans, which is approximately 47% of the total workforce.

Additionally, small businesses offer greater diversity within the job sector. While large chain stores hire plenty of cashiers, clerks, and warehouse staff, small businesses have more specialized needs. They hire more skilled laborers such as accountants, consultants, graphic designers, and technical workers. Having greater professional diversity makes the local economy stronger.

  1. Investing in small businesses builds up the local community.

Since you know who you are doing business with, there is a greater sense of trust and better customer service. In turn, many small businesses also give back to their local community. Small business owners regularly contribute to neighborhood schools, homeless shelters, community outreach programs, charities, and other nonprofit organizations. When you support small businesses, you are helping to build your community as well.

  1. Small businesses need support now more than ever.

While entrepreneurship embodies the American dream, small business owners will never achieve it without your support. With more banks getting out of the small business lending market due to increased regulations, it is becoming more difficult to raise capital.

The problem of the lack of funding has also been further compounded due to the pandemic. Many businesses are struggling to stay afloat as they contend with social distancing regulations and fewer in-person interactions with customers. This is why business owners are searching for new ways to engage the public.

Tax Benefits for Investing in Small Businesses

In addition to the community benefits, there are also tax benefits for investing in small businesses. After the mortgage crisis, the federal government initiated new tax benefits for investing in small businesses. With Qualified Small Business Stock (QSBS), investors can exclude a percentage of gains from selling shares of certain types of companies from federal taxation. This is extremely beneficial to investors in startups because there is greater potential for returns after taxes when you cash out your investments.

As with all tax exemptions, there are stipulations that apply. You can exclude 75% if the stocks were acquired between February 17, 2009 and January 1, 2011. However, if your shares were acquired outside this time period, the gain exclusion is between 50-60%. If you are uncertain about your holdings, you should consult with your financial advisor to see if you qualify.

A New Way to Invest in Small Businesses

Once you decide to invest in a small business, the next step is choosing your investment vehicle. The SMBX platform is an innovative investment platform that gives small businesses direct access to individual investors. It uses regulation crowdfunding, so private investors can skip the middleman and support the small businesses of their choice. Their business model is built on the idea that you get to “be the bank” and help raise capital for small businesses.

Instead of relying on bank loans to keep their doors open, small business owners can generate capital by selling debt-based financial assets. When you purchase small business bonds, you (the investor) loan money to the small business (issuer) for an agreed upon length of time. In turn, the business now has a financial and legal obligation to repay the value of the bonds plus interest back to its investors.

When you invest through SMBX, it creates a win-win scenario for all involved. Small businesses get the funds they need without involving the banks. In return, you get greater control over where and how you invest your money.

Benefits to the SMBX Platform

Small business bonds create new opportunities and have transformed small business debt. Companies no longer need bank loans. Instead, they can directly engage and interact with individual investors.

There are also less regulations and fees associated with these types of assets. Furthermore, investors can choose where they invest their money and affect change in their own community. In addition to the tax benefits for investing in small businesses, you can support ones that share your beliefs and business ethics.

Investing in Small Businesses with SMBX

One of the first things I noticed when I accessed the SMBX website was that it welcomed all non-accredited investors to join. As I continued to browse the site, I found it simple to navigate. The interface was easy to understand and extremely user-friendly.

Before I purchased my first Small Business Bonds, I wanted to make sure and read all the fine print. I was pleased to learn that there are no fees and I could begin investing with only $10. Returns vary depending on which offering you choose, but on average they usually yield about 6.5%. What finally solidified my decision was the fact that I am free to withdraw or reinvest your earnings any time. Even if I change my mind after an order is confirmed, I still have 48 hours to cancel and update my orders.

After reviewing the available offerings, I purchased bonds with ChildWise, a company dedicated to early childhood education. As a teacher, I was excited to support their mission to create quality content and training programs for educators, parents, and caretakers around the world.

Not only do my values align with their long-term goals, but it also seems like a financially sound investment. The bonds are estimated to have an 8% yield, showing the most growth in the Chinese market. As the world becomes more connected, I feel it is important to have exposure to global markets. In addition to supporting a worthy cause, I can also look forward to profitable returns.

The Bottom Line

Small businesses are an important part of the local and national economy. In addition to gaining greater control over your money, there are also significant social and tax benefits for investing in small businesses. With innovative platforms such as SMBX, startups and smaller ventures can now engage and connect with investors in their own communities.

 

Should You Invest in Mobile Homes?

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Mobile homes get a bad rap, but they could really be a good place to invest money. Investing in real estate is a good way to diversify your portfolio. Mobile, or manufactured homes, could be a good little niche in that sector. Should you invest in mobile homes?

What is a mobile home?

Mobile homes, also known as manufactured homes, are residential structures built in a factory or separate location and moved to the desired location. These homes are built according to HUD guidelines.

Those guidelines are as follows:

  • Design and construction
  • Strength and durability
  • Transportability
  • Fire resistance
  • Energy efficiency
  • Overall quality

Why invest in mobile homes?

Social stigma around mobile home parks prevent people from investing in them

Investing in individual mobile homes is difficult because the people that rent them are a (and I’m making a big generalization here) a challenging bunch to deal with. Invest in the grounds and infrastructure where the mobile/manufactured homes are.

There are several benefits to investing in mobile home parks:

  1. Recession-resistant (held up through the GFC)
  2. Tenants rarely leave, but sometimes, evictions are necessary (as they are with any real estate endeavor)
  3. Supply is waning, demand is increasing
  4. Predictable maintenance costs
  5. Stigma reduces competition with other investors
  6. Great financing options
  7. Limited need for contractors
  8. They’re inexpensive (you can buy individual units to rent on your property for less than $10,000 – depending on the area and demand)

(List provided by BiggerPockets)

Conclusion

As I mentioned in the beginning, investing in real estate is a great way to diversify your portfolio. It can also be a good way to get a return on your money.

Within the real estate sector, mobile home parks can be a very good niche, for the reasons I mentioned above. Should you invest in mobile homes?

Related reading:

Why Financial Literacy is Important

How to Invest in Real Estate without Getting your Hands Dirty

Hard Money Loans: Benefits for Real Estate Investors

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

What Should I Do With the Next Stimulus Check?

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next stimulus check

With the new COVID relief bill passed by Congress and signed by President Joe Biden. Many Americans have stimulus checks on the way if they aren’t already in hand. However, figuring out what to do with the money can be surprisingly tricky. Particularly if you have some conflicting needs. Luckily, it is possible to choose the best path for you. If you aren’t sure where to begin. Here are some options for what to do with the next stimulus check.

Handle an Urgent Need

If you have an urgent financial need, such as issues buying enough food for your household or past-due utility bills, using your stimulus check to handle those costs is your best bet. It ensures you can continue to live without undue hardship, and that’s important during this pandemic recovery period.

Additionally, if you have secured debt – like an auto loan – and you’ve fallen behind on payments, putting the asset at risk of seizure, it may be a solid target. By catching up, you may be able to avoid the repossession or foreclosure. Depending on the asset involved, that might be crucial.

However, before you send stimulus money toward any bill, you may want to see if there are other programs available that may reduce that burden. For example, utility companies, mortgage lenders, certain state or county offices, and many other organizations have relief programs to help those who are struggling due to the pandemic. If you’re eligible for their assistance, don’t hesitate to use it. Then, you can direct your stimulus check toward other needs.

Pay Your Taxes

If you have filed (or are about to file) your federal taxes and owe money to the IRS, using your stimulus check to handle that burden isn’t a bad idea. Unlike for the 2019 tax year filings, the IRS isn’t postponing 2020 tax filings this year. If you want to avoid fees and interest, then you need to pay what you owe in full by April 15.

Even if the stimulus check only covers part of your obligation, using it to handle some of your taxes reduces this total burden. Then, if you need to enter into a payment plan with the IRS to address the rest, what you’ll need to pay could be easier to shoulder.

Create an Emergency Fund

If you don’t have any cash – or very little money – set aside in an emergency fund, using your stimulus check to get one started is a good idea. It’s wise to have a little cash available for unexpected events, something that the pandemic made abundantly clear for many.

Ideally, you want at least $1,000 set aside initially. Then, you can work your way up over time, aiming to save a minimum of three to six months’ living expenses.

Pay Down High-Interest Debt

Using your stimulus check to tackle high-interest debt is always a good idea. Not only will it reduce the amount of money you’ll pay over the life of the debt, but it could potentially boost your credit.

For many people, starting with high-interest credit cards is the best way to go, especially if the cards are close to being maxed out. However, for others, a high-interest personal loan could also be a good target.

Finally, if you have a payday loan, focusing on that might be your ideal option. Payday loans usually come with astronomical interest rates, making them a wise debt to tackle with stimulus money.

Boost Your Retirement Savings

By using your stimulus check to boost your retirement savings, you not only do something to help secure your financial future, but you may also get a tax benefit. You have until April 15, 2021, to finish up your 2020 retirement investing. If you contribute your stimulus to a tax-advantaged account, you might be able to lower your 2020 tax burden.

However, you can also use the money for your 2021 retirement savings. You may be able to get a jump start on it or even fully fund an IRA, depending on how much you receive in your stimulus check.

Handle a Large Purchase

If you have a solid emergency fund, fully funded retirement accounts, no high-interest debt, and have your financial house otherwise in order, then using your stimulus check for a large purchase is certainly an option. It may give you the ability to buy high-cost items in cash, allowing you to potentially avoid high-interest debt.

Even using stimulus money to fund a vacation can be a smart move if you’re in good financial shape otherwise. Again, it lets you avoid the need for debt and could give you something fun to look forward to once you feel comfortable traveling.

Invest, Invest , Invest

If you want to put your stimulus check to work but already have a fully-funded retirement account, then you could always invest separately. There are many options that can help people get started, including full-service brokers, robo-advisors, and anything in-between.

You will need to do some research if you don’t currently have an investment account, ensuring you choose the right brokerage for you. Additionally, if you aren’t sure where to invest the money, you might need professional guidance or to conduct more research.

In many cases, focusing on individual stocks isn’t wise for beginners. Instead, options like index funds may be a better bet, as they come with an innate level of diversification.

Save Money for College

Whether you have children or may go back to college yourself, setting your stimulus check aside in a 529 college savings plan could be a smart move. It lets your money grow tax-free, and any withdrawals you make for qualifying expenses aren’t taxed either. In the end, this option can help make college more affordable, allowing you or your child to potentially avoid or reduce the need for costly student loans.

Do you already have plans for your next stimulus check? Share your thoughts in the comments below.

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