Don’t put your $ 1,400 stimulus check on stocks like GameStop, advisors warn

John Smith | Corbis News | Getty Images

The final round of $ 1,400 worth of stimulus checks finds its way to eligible Americans.

Now these people have an important decision to make – what will they do with the extra money?

For some, the money is used to wager on popular stocks like GameStop and AMC.

Investors between the ages of 25 and 34 plan to spend half of the stimulus payments on stocks, and those 18-24 year olds will spend about 40% on wealth, according to a recent survey by Deutsche Bank. Stimulus payment tracking data from Cardify.ai, a market research firm, found that respondents want to spend 32% of their checks on stocks or cryptocurrencies.

More from Invest in You:
Suze Orman: Don’t invest in your stimulus checks. Here is what to do
Women are more financially stressed. Here’s how to overcome it
Women lag behind men in saving for retirement. Covid made it worse

So-called meme stocks have been on a wild, retail-fueled path lately. GameStop has been driven in part by Reddit traders in recent months who wanted to pressure hedge fund betting against the company. The stock rose 33% on Wednesday after the company’s quarterly earnings report, but then offset the loss in Thursday’s midday trading.

Financial planners generally advise that people use their stimulus checks to prop up their personal finances and build for the future.

Still, some may want to assign part of the windfall to a hot stock.

“As long as you understand that it is a game of chance and not the true path to wealth, that’s fine,” said Jessica Goedtel, certified financial planner and senior planner at Facet Wealth, a registered investment advisor in Baltimore.

“But times like these are really good times when we can reassess where we are going in life and what we want to do with our money,” she said.

Increase your emergency savings

This year particularly highlighted the importance of having some emergency savings in the bank, making such an account a great place for some of your latest stimulus checks.

“If someone doesn’t have an emergency fund, this is a good place to start,” said Anjali Jariwala, CFP, CPA and founder of FIT Advisors in Torrance, Calif.

And, you don’t necessarily have to spend your entire check on savings when you have multiple financial goals. Studies have shown that even when small amounts of money such as $ 100 are saved, families can be protected from adverse events such as utility shutdowns or moving house.

repaying debts; to repay debts

If you have outstanding debts, reviewing all or part of your economy is also a solid financial idea.

Experts generally recommend starting with high-yield debt such as credit cards. The more you can pay off, the less you will pay over time if interest is accrued.

The checks could also be used to repay or repay car loans or personal loans. People could also use the money on student loans, although most payments are currently on hold due to the pandemic.

Invest in a balanced portfolio

If you want to invest your payment in the stock market for economic impact, experts generally recommend that you put that money in a balanced portfolio that is meant to grow over time. This can be done in a retirement account or other investment account invested in a range of stocks and bonds, depending on the schedule.

“Invest your check today and leave it standing for 20 years,” said Stephanie Trexler, CFP, CEO and financial advisor at Golden Goose Wealth Planning in Grand Rapids, Michigan. “That will pay off.”

It’s also a much better choice than investing in a volatile single stock that has all of the eggs in one basket, Trexler said.

Contribute to a retirement account or 529 plan

You can also put some of the money into your child’s or child’s future by investing it in an individual retirement account, health savings account, or even a 529 plan.

Investing in such accounts is another way to grow your money over the long term.

If you did not make the maximum contribution to an IRA or HSA in 2020, you can now deposit the funds into such an account before the deadline. If you haven’t filed your 2020 taxes yet, this step may also help lower your Adjusted Gross Income to qualify for other tax breaks.

Spend it

If you have solid foundations with your finances, including retirement savings and an emergency fund, you may want to spend those too.

“We are really busy making sure that money is invested or used appropriately,” said Jariwala. “But we should also reward ourselves for the hard work we do.”

That may mean working out some of the stimulus check to go on a trip in the future or to buy an item that you saved for.

Times like these are really good times to reevaluate where we are going in life and what we want to do with our money.

Jessica Goedtel

Senior Planner at Facet Wealth

Comments are closed.