How should I invest future stimulus checks?

With a new $1.9 trillion coronavirus relief bill calling for a third stimulus check of $1,400 for millions of Americans, qualified individuals and households are eagerly awaiting its rollout. That relief comes on the heels of a $900 billion coronavirus stimulus bill passed in December 2020, which included $600 stimulus payment aid and additional unemployment relief.

Many aspects of personal finance may top of mind for many Americans as they expect their third stimulus check, it may be worth contemplating some best strategies to invest your stimulus check. Here are some recommendations from financial experts, including exploring a high-yield savings account (you can visit Credible to see your options).

How should I invest my stimulus check?

1. Park the cash in a high-yield savings account
2. Invest in the stock market
3. Build an emergency fund
4. Spread the money around
5. Invest in your financial future by paying down debt

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1. Park the cash in a high-yield savings account

“For the average American, a high-yield savings account is the best way to invest a stimulus check,” said Nicole Kubin, founder of Strategic Divorce Advisory, a New York City-based financial consulting firm. “They're safe, there's no chance involved and they provide immediate liquidity. Plus, they’ll keep you from using these proceeds for lifestyle spending.”

High-yield savings accounts offer some protection when investors need it most. “Investing in a high-yield online savings account will provide a low-volatility investment and earn money that’s available to pay future bills,” said Greg Klingler, director of wealth management at the Government Employees’ Benefit Association, in Odenton, Maryland.

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2. Invest in the stock market

Klingler is advising his clients to review current stock market conditions and find stocks that pay off in the long-term.

“Strong companies with great long-term prospects may be available with heavily-reduced prices due to reduced 2020 earnings outlooks,” Klingler said. “In addition, the Federal Reserve’s recent emergency rate cut to near zero and additional economic stimulus measures should help steady the stock market in the near future.”

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3. Build an emergency fund

Beyond investing in the market, Klingler advises either starting or fortifying an emergency fund.

“Recent data suggest that many of us would be unprepared for an unexpected financial shock,” he said. “For instance, the median American is defined as living paycheck to paycheck, and only able to cover basic living expenses for just eight days and 47% of Americans would struggle to immediately produce $400 to pay an unexpected bill."

A good baseline for an emergency fund is three-to-six months of expenses in liquid cash. “Personalizing or naming the fund can help motivate you to contribute to your emergency fund and resist the temptation to withdraw from it,” Klingler said.

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4. Spread the money around

The best way to invest your check depends on what you want to do with the money.

“If it's in a retirement or an account for your long-term goals then consider an exchange-traded fund that provides broad exposure to stocks, bonds and real estate,” said Joseph Hogue, a former Wall Street analyst and founder of the Let's Talk Money channel on YouTube. “If you're likely to need that money within the next year then steer it to something safer like a short-term bond fund or gold.”

Investors who already invest regularly can take a little more risk with this 'extra' money. “Consider breaking it up into higher-risk, higher-return investments like cryptocurrencies or even penny stocks,” Hogue said

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5. Invest in your financial future by paying down debt

If you’re carrying credit card debt, work on paying off that debt to garner a better financial return.

“If your credit utilization rate is above 30%, your credit score suffers,” said Karen Condor, a finance analyst with USInsuranceAgents.com, an insurance services platform. “If your stimulus check can’t stretch enough to cut your debt substantially, at least pay more than the minimum debt on your credit cards.”

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The takeaway on investing your stimulus check

Some households will need stimulus cash to cover household bills and restock necessities. But if you can manage it, investing the money in a high-yield account or another investment vehicle can put that money to work for you – and help you earn more money going forward.

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