How to use your stimulus check to invest for the future


By now, you may have already received a stimulus check from the government. And if not, the money could be on its way to you soon.

These payments of up to $1,200 per adult and $500 per child are meant to help Americans affected by the coronavirus outbreak. The best way to use your stimulus money depends on your situation. You may well need this money to pay for necessities like rent and groceries, to chip away at high-interest debt, or to boost your emergency savings fund so that can cover 3-6 months of expenses. 

But if you're on solid financial footing, you have another option; one that could set you up for the future: You could invest the money, says David Schneider, a certified financial planner and president of Schneider Wealth Strategies. "If you need the money soon, keep it liquid," Schneider advises. "If you don't, and you're able to, put it away for retirement."

Here are some tips for how to invest your stimulus check.

1. Contribute more to your 401(k)

If you're working full-time and your employer offers a 401(k), the stimulus check could help you increase the amount that you're contributing to your retirement plan.

Start by reviewing your budget. "I would look at what can I change maybe within my planning," says Skip Johnson, a financial advisor and partner at Great Waters Financial. "Maybe I can contribute more next month to my 401(k)."

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That's because this stimulus check, like any other unexpected windfall, can free up more money in your monthly budget. You can then use that extra money to cover your monthly expenses because increasing your 401(k) contributions will reduce your take-home pay.

Strive to boost the amount of money you're contributing to your workplace retirement plan to take full advantage of any employer match, Schneider says. That's free money that your employer kicks in to help you save for retirement. "That would be a sensible place to start, bumping up your 401(k) options," he says.

2. Open an IRA

If you're already maxed out on the employer match on your 401(k) or if you don't have a workplace retirement plan, now is a good opportunity to open an IRA. An individual retirement account is another great way to save for the future — and as an added bonus, it offers you a nice tax break.

There are two different types of IRAs, Roth and traditional, and each allows you to contribute up to $6,000 (or $7,000 if you're 50 or older) toward retirement. This year, as a result of the coronavirus pandemic, you'll have until July 15 to contribute to an IRA for the 2019 tax year, which can be a smart, money-saving move.

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3. Focus on high-quality investments

As a result of the recent turbulence in the market, long-term investors will benefit from lower stock prices if they jump in now. That means your dollar will stretch further when you go to invest.

"I do not know when the stock market will recover, but I 100% know it is a better time to buy today than it was a month ago before all of this began," Johnson says. While the S&P 500 has rebounded in recent weeks after hitting the lowest level since 2016, it's still about 15% below its all-time high in February.

As far as what types of assets to buy: Focus on high-quality investments that are broadly diversified, Schneider advises. Broad market index funds are a good place to start. That's because these types of investments are a low-cost way to quickly achieve diversification.

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Finally, remember that you should invest money that you don't need within the next five years, given that investing in the stock market for shorter periods of time can be risky. Over long periods of time, like decades, investing in the market has been a proven way to grow wealth.

"If you do invest the money, you have to expect in all likelihood there will be additional volatility, but you'll probably be very happy you invested 10 years from now," Schneider says. "This is a good opportunity to take advantage of markets that are down from where they were just a few months ago."

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