The many stimulus payments from the federal government have completely changed the course of the US economy.
While low- and middle-income people were able to survive the crippling impact of the epidemic on the economy, initial fears that America was facing the worst recession in history quickly gave way to a condition of hope and abundance.
The third American Rescue Plan Act stimulus payment, often referred to as an economic effect payment, included $1,400 for each filer and an additional $1,400 for each dependent.
Most people who were struggling financially during the epidemic’s lean weeks suddenly found themselves rich. This was especially true given that they had recently received $600 as part of the second batch of stimulus checks.
Stimulus check earnings could be invested in high-yielding sectors like the stock market by those who were still in gainful employment and not experiencing financial hardship.
Stimulus checks allowed people who had always lived paycheck to paycheck to suddenly have more money in their pockets. And that’s after paying for groceries and other necessities, paying rent, utilities, and even paying off debts, especially high-interest ones like credit card balances.
People had money to spend on luxury goods. Plus, they were able to keep a significant chunk of their stimulus check money for the first time in years. In the wake of the outbreak, about a third of investors who received stimulus checks were able to invest some of them. Moreover, young investors had a higher propensity to invest their money rather than to consume it.
Young people made up the majority of those who invested their stimulus check money.
A staggering 49% of those up to age 34 invested their stimulus check payments. 11% invested in cryptocurrency, compared to 15% who bought stocks. Mutual funds received 9% of funds, while exchange-traded funds were subscribed by 8% of investors.
It seems logical that people would use their free money to invest given the emergence of an investing culture on social media and the simplicity of trading on mobile apps.
Many people have been observed to focus on finding new investment opportunities with their stimulus check earnings during the peak weeks of the pandemic rather than being distracted from their daily routines.
New investors have shown themselves to be more varied, younger and comfortable with new technologies and trading instruments. They effortlessly used social media to conduct research for their investment strategies.
According to experts, this fits into their larger financial situation and is the right course of action. The quick money attitude, in which investors were looking to make a lot of money quickly, was not present in this situation. People here were long-term investors.
Experts advise against investing excessive amounts of stimulus funds.
Many financial experts have also advised against investing stimulus money, especially if the recipient does not have a sufficient back-up plan or emergency reserve.
They claim that having a reliable emergency fund and proper backup security is the key to achieving financial freedom. They advise against using this specific part of your funds, especially if you want to invest them in the stock market, which is now risky for short-term investors.
Money from a stimulus check shouldn’t be used to start investing, experts warn, unless you have a large emergency fund that can cover your needs for several months. And knowing your time horizons is the first step in investing.
Before investing in stocks, make sure you are resilient enough to take a beating.
Given the volatility of these markets, investment professionals advise against investing in meme stocks and cryptocurrencies.
The appropriate ratio between reward and risk must also be determined beforehand. Before investing your money in the stock market, you should think carefully if even a 2% drop in the market makes you uncomfortable.
To do this, it is crucial to ensure that your portfolio is diversified in terms of companies and even sectors. Also, keep an eye out for any signs of a downturn in a specific industry and get out before things get bad.
The tourism and travel industry, for example, was certain to suffer during a pandemic, and those who left at the first sign of trouble were unaffected by the downfall in those industries that persisted for months. Even now, this company is still struggling to fully recover.
Time horizon funds or index funds should be chosen by those with limited resources. These investments are based on the potential timing of your return needs. If the timeframe is longer, you can afford to start more aggressively, as you will have more time to recover if the market drops or even crashes.
Alternative investments people have made with their stimulus checks
People with steady jobs and lots of money have thought about investing their stimulus payments in stocks. However, some workers did not feel entirely comfortable in their work.
Even people in well-paying jobs understood that the pandemic was not completely under control and that a sharp drop in income was imminent.
This is especially true now that the country is heading into a brief recession that could lead to job losses in all sectors.
Saving money for retirement is usually a smart move, so in that sense, stimulus checks are a welcome surprise. There was the usual IRS investment for retirement programs.
For people age 50 or older, the maximum contribution is between $6,000 and $7,000. Therefore, investors can store all their money if they won’t need it soon or if they don’t want to risk it on risky investments like stocks or cryptocurrencies.
Another strategy is to pay off as many loans as possible, starting with those with the highest interest rates. Credit card debt can be expensive and go up to 15%. Paying off your debts will help you free up a large sum of money. And no amount of secure investment can match the maximum return debt repayment can provide.