Curious about what stocks to consider when investing stimulus check?
Written by Jenni Fink of Newsweek
Given that $1,400 isn't considered a large sum of money on Wall Street, those who are looking to invest it may want to turn their attention to Exchange-traded funds (ETFs), according to experts.
President Joe Biden's $1.9 trillion package has passed both chambers of Congress and the White House expects many Americans to receive direct payments by the end of the month. For some, the money is vital to paying bills, as millions remain unemployed, but others will look to save or invest their third payment.
Instead of buying individual components, ETFs give a person an opportunity to buy and sell multiple assets in "one fell swoop," Sam Stovall, chief investment strategist at CFRA Research, told Newsweek.
One ETF he recommended was the S&P 500 Dividend Aristocrats, which trades as NOBL, and consists of companies that have raised their dividends every year for at least 25 years. It's currently trading at about $84 and if that holds, a person could buy 16 shares with a $1,400 check.
"When you get dividends, you get that every year," Stovall said. "You can then benefit by reinvesting your dividends."
Most people used the first two rounds of checks to pay bills or boost their savings account, but others invested it in the stock market, including Albert Lewis III, a 19-year-old college student. He told Bloomberg in December the $600 stimulus check he received wasn't "needed at the moment" so he wanted to invest it so it's a larger amount when he does need it. He acknowledged $600 wouldn't turn into $10,000 in a year, but "in 40 years it's going to be worth way more."
A Deutsche Bank survey found 50 percent of investors between the age of 25 and 34 who use online broker platforms are planning on spending 50 percent of their third stimulus payments on stocks, according to CNBC.
Jeff Carbone, managing partner for Cornerstone Wealth, agreed that ETFs could be a good option because it provides for a broader base at a lower price. As far as sectors are concerned, he advised people to look at energy, financial and technology, if they're being selective.
"Technology is a hard space to get a lot of movement because it's so strong," Carbone said. "Long-run though technology isn't going anywhere so it should be part of anyone's portfolio." While it should be part of a person's investment portfolio, $1,400 might not get someone far in the technology sector, according to Carbone, who used Amazon as an example. As of Tuesday afternoon, it was trading at over $3,000, so a stimulus check wouldn't even buy one share. Carbone also advised against "chasing the momentum" of things that previously did really well and for people to be careful about Gamestop-type situations where they're "trying to jump on board."
Another option Stovall suggested for newer investors is to look at the 30 companies listed on the Dow Jones Industrial Average. Since those are the companies that are discussed on television, it'll serve as a constant reminder of how stocks fluctuate. That may trigger questions about companies that lead a person to do more research, thereby creating a learning tool.
Another investment to consider for someone who's new to the game is a Roth IRA, according to Carbone. He called it one of the "best strategies" a person has because you have the ability to withdraw contributions you made without being taxed.
Although the prospect of using a stimulus check to invest may be tempting, experts consider it secondary to setting up an emergency fund, saving for children's college with a tax-advantaged account, such as a 529 savings plan, and, most importantly, paying down debts.
"If you've got a credit card charging you double-digit interest rates, you're so much better off taking this money and paying that down," Stovall said. "In a sense, you're investing in yourself because you're lightening your debt burden."
Stovall also advised people to ensure they have disability insurance before using their $1,400 payment to buy stock. Citing a person's ability to work as their "greatest asset," he said disability is a "living death" because your income goes away, as if you were dead, but you're now an expense. If a person is clear of debt and has disability insurance, then they may be ready to invest.
Avoiding investing based on emotions, which can cause someone to buy at the top and sell at the bottom, Stovall advised people not to "stress about it."
"Make it a fun experience and realize that Rome wasn't built in a day," Stovall said. "You're not going to become a millionaire overnight and don't try to become a millionaire overnight."
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This is for informational purposes only. Cornerstone Wealth is not associated with Newsweek. Investment advisory services offered through Cornerstone Wealth Group, LLC dba Cornerstone Wealth, an SEC registered investment adviser