You’re probably hearing that stocks are on sale amid the coronavirus panic.
You’ve also probably gotten an extra $1,200 (or more!) or will be receiving it very soon thanks to coronavirus relief checks.
If you’ve lost your job, you’re probably using that money for essentials.
But if your income hasn’t been affected, perhaps you’re considering whether you should risk that money in the stock market. To help you figure out how to invest it — or if you should be investing in the first place — we asked several financial advisers and planners for advice.
4 Ways to Invest Your Coronavirus Check
Investing your coronavirus check can pay off in the long run. But you should only do so if you’re prepared for emergencies and you understand the risks. Here are four ways to wisely use that check.
1. Build Your Emergency Fund: Your #1 Priority
When we asked the pros for tips on how to invest coronavirus checks, the number one response we got was a version of: Are you sure you can afford to invest it at all?
Before you invest that check, you’ll want to have three to six months’ worth of living expenses in your savings account, said Scott Newhouse, a certified financial planner with Forthright Finances and professor of financial planning at California State University, Northridge.
But you also need to take a realistic look at your employment situation.
Newhouse encourages people to “really think about if your employer is going to be able to keep you employed during this time.”
“If you or they have any hesitation about that, since we don’t know exactly how long this is going to last, I’d encourage you to keep your check and put it into a savings account until your employment is more secure,” he said.
2. Paying off Credit Cards: An Investment in Your Future
Nothing is guaranteed in the stock market, but if you have credit card debt? Unless you have a 0% introductory interest rate, it’s guaranteed to cost you money each month.
Credit cards carry an average interest rate of more than 17%. That means for every $1,000 of credit card debt you carry each year, you’ll pay another $170 in interest on average.
Putting your stimulus money toward paying off your credit card debt is a lot less sexy than chasing wild stock market returns, but it’s one of the best investments you can make in your financial future.
3. Stocks: Only if You Can Make a Long-Term Commitment
Investing in the stock market is a great way to build wealth — but only if you’re willing to keep it there for years, no matter what the stock market does.
“The stock market could give us quite a roller-coaster ride for as long as the COVID-19 pandemic lasts, and it could certainly decline if the pandemic ends up lasting longer than expected,” said Matt Frankel, CFP and investment adviser with The Motley Fool’s The Ascent. “However, stocks remain a great way to create wealth over long periods of time. From a historical perspective, investing when the market has declined 20% or more from the high point is an excellent time to put money to work.”
One rule of thumb: Only invest in stocks if you won’t need the money for at least five years.
Ready to commit your check for the long haul? You probably don’t want to pick individual stocks, especially if you’re not an experienced investor.
“Investing in low-cost index funds can be an excellent way to get started,” Frankel said. “For example, an S&P 500 index fund has generated annualized returns of about 10% over time, which can certainly compound into excellent returns over several decades.”
The coronavirus tax extension didn’t just give you an extra 90 days to do your taxes. It also gave you 90 extra days to fund your Roth IRA for 2019.
4. Bonds or CDs: For Money You May Need Sooner
But what if you expect that you’ll need your stimulus check in the next few years? Does that mean you’re doomed to settling for 0.01% interest in a checking account? Not exactly. But you should look at investments that are less risky than stocks.
“If it’s money for a down payment on a house, car or other major purchase that you’ll need in the next several years then you probably don’t want to subject that money to a tremendous amount of risk,” said J. Stephen Gunter, CFP and associate adviser with Bridgeworth Wealth Management in Huntsville, Alabama.
He suggests bonds, CDs or even keeping it in cash as options here, depending on your time horizon.
If you think you’re ready to try your hand in the market, here’s our beginner’s guide.
Robin Hartill is a senior editor at Codetic and a certified financial planner. She writes the Dear Penny personal finance advice column.