3 investments to buy with your tax refund
JAlthough we are fairly early in this year’s tax season, some filers may soon start seeing their refunds arrive in their bank accounts. If you receive a lot of money from the IRS this year, you have a great opportunity to use it for wealth building purposes. Here are some investments that are worth picking up with that money.
1. S&P 500 ETFs
You will often hear that maintaining a diversified investment portfolio is the key to growing wealth. And in this regard, ETFs are a great bet.
ETFs allow you to own a whole bunch of companies with a single investment. And if you load on S&P500 ETF, you effectively own a share of the 500 largest publicly traded companies today.
The advantage of ETFs is that they take a lot of the guesswork out of investing. If you don’t have time to research a few dozen companies to see if they’re right for you, you can pick up broad-market ETFs, like those that track the S&P 500, and ease the burden of having to do that legwork. .
2. Dividend shares
Dividend stocks can be lucrative in two ways. First, like all stocks, their value can increase over time. But also, the dividends they pay out will represent money that you can reinvest to further grow your portfolio.
Now, one thing you need to know is that some companies have a more consistent history of paying out and increasing their dividends than others. So it makes sense to look at a company’s dividend history as well as its current dividend yield before choosing one investment over another.
If the idea of earning dividends appeals to you, it’s definitely worth considering adding REITs to your portfolio. REITs are companies that own and operate properties, and one of the best things about them is that they tend to pay above-average dividends. In fact, REITs are actually obligatory pay at least 90% of their taxable income to shareholders each year in the form of dividends. And some REITs manage to do even better.
REITs are a great way to diversify into real estate without having to go out and own physical properties. And because REIT values don’t always rise and fall directly with stock market movements, they can offer you some protection during periods of volatility.
Make good use of this refund
To be clear, a tax refund is in no way found money. Rather, it’s money you overpaid in the previous tax year that you could have taken advantage of earlier. But estimating your tax bill for the year can be tricky, and many people would rather err on the side of owing money during tax season than having to write a check to the IRS.
The thing, though, is that while you may be tempted to squander your tax refund on something fun, a better bet is to use it to improve your long-term financial situation. And investing in S&P 500 ETFs, dividend stocks, and REITs could be your ticket to getting there.
10 stocks we like better than Walmart
When our award-winning team of analysts have investment advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They have just revealed what they believe to be the ten best stocks for investors to buy now…and Walmart wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
Equity Advisor Returns 2/14/21
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.