Though we’re pretty early on in this year’s tax season, some filers might soon start seeing their refunds hit their bank accounts. If you’re getting a pile of cash back from the IRS this year, you have a prime opportunity to use it for wealth-building purposes. Here are a few investments worth scooping up with that money.
1. S&P 500 ETFs
You’ll often hear that maintaining a diverse investment portfolio is the key to growing wealth. And in that regard, ETFs are a great bet.
ETFs allow you to own a whole bunch of companies with a single investment. And if you load up on S&P 500 ETFs, you’ll effectively own a share of the 500 largest publicly traded companies today.
The great thing about 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 scoop up broad market ETFs, like those that track the S&P 500, and lift the burden of having to do that legwork.
2. Dividend stocks
Dividend stocks can be money-makers in two ways. First, like all stocks, their value can increase over time. But also, the dividends they pay out will represent money you can reinvest to further grow your portfolio.
Now one thing you should know is that some companies have a more consistent history of paying and raising their dividends than others. And 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 collecting dividends appeals to you, then it definitely pays to consider 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 higher-than-average dividends. In fact, REITS are actually required to pay out at least 90% of their taxable income to shareholders in dividend form each year. 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 directly rise and fall with stock market movement, they can buy you some protection during periods of volatility.
Put that refund to good use
To be clear, a tax refund is by no means found money. Rather, it’s money that you overpaid during the previous tax year when you could’ve enjoyed it sooner. But estimating your tax bill for the year can be tricky, and many people would rather err on the side of being owed money during tax season than having to write the IRS a check.
The point, however, is that while you may be tempted to blow your tax refund on something fun, a better bet is to use it to improve your long-term financial picture. And investing in S&P 500 ETFs, dividend stocks, and REITs could be your ticket to doing just that.