The average tax refund in the U. S. is about $2,700. You could choose to spend that money, save it or invest it. If you want to invest, there are some important things to know about the current economic climate.
Things look good for investors right now. It’s a bull market. Stock prices are growing. Prices are going up. But economists say there’s solid evidence to suggest a major stock market correction is coming and we’ll likely be headed back into recession by the fall.
Megan Regan is an Economics Professor at Salem College in Winston-Salem. She gave us three things to keep in mind if you want to invest your tax return during these economic times.
First she says consider investing in bonds. They’re low risk and practically guarantee you’ll make money.
“It’s a low return. It’s usually slightly better than inflation, but you’re not going to walk away with zero,” she said.
Regan also says know what she calls your “time horizon.” With an inevitable downtown in the market, she suggests older investors stay away from the stock market.
“If you want to retire in the next 10 to 15 years, get out while you can, because you don’t have the time horizon to let the stock market recover. Now, if you’re 23, 28 and you’ve probably got another 30 to 40 years of investing and working and saving, it’s okay to leave your money in the market,” she advises.
Thirdly, while it’s not as exciting, she says you should pay off high-interest debt if you have it. You’ll make more money by paying this off before investing that tax return.
“You’re paying much more in interest rates, daily compounding interest rates, than you are likely to earn in picking a one-off stock or even a bond or a mutual fund,” she said.
Once again, Regan and other economists say this market has nowhere to go, but down. In fact, if we’re not back in recession by this fall, it’ll be the longest period of recovery in U. S. history.
So, if you’re close to retirement or just risk-averse, this is a good time to consider other options besides the stock market.