Should You Invest Your Tax Refund?

Murray K. from Atlanta, GA asks: My tax refund this year was higher than in year’s past, so I’m thinking about investing it. At the same time, it feels as though the market is already too high and that I could be investing near the top. Do you think I should wait, or invest now? Mitch’s Response: Thank you for writing, Murray, and congratulations on getting your taxes done early and securing a nice refund! That is always a good feeling. You make a valid point that the market could be approaching it’s ‘top,’ given that this bull market and economic expansion are now entering their 10th year. The S&P 500 has already gone up over +200% on a price basis since March 9, 2009.1 That understandably leaves many investors wondering, how much more could it really go up? I’d make a few points here: 1. Consider that the S&P 500, as of this writing, is still negative for 2018. Because of the market correction that took hold on January 26, stocks declined off the highs and have been fighting to get back to positive territory – but haven’t done so yet. Zacks Investment Management expects that stocks should finish in positive territory for 2018, due to strong expected earnings, more government spending, the tax cuts, and gradually rising interest rates. So, putting it all together, if stocks are down for the year so far and we expect 2018 to be a positive year, we would see now as a fine opportunity to invest with a long-term outlook. 2. Ask yourself: is this money long-term in nature, i.e., do you need it anytime soon? If the money you’re asking about is cash that you don’t need for the next 5, 10, or 15 years, then I would say it makes more sense to invest it in accordance with your long-term goals and needs. However, if you were just hoping to invest this money to try to secure some returns over the next few months or even year, I would not recommend investing in the stock market. Our forecast for 2018 is for positive returns, but we could always be wrong and stocks are inherently volatile. 3. Remember, it’s time in the market, not timing the market. Many investors tend to get caught up in short-term returns – making an investment and expecting a certain result right away. But successful investing, in my view, involves focusing on the kinds of results you can generate over much longer periods, like 10 or even 30 years. In my opinion, the best way to accomplish those kinds of successful results is to invest in stocks for as long a period of time as possible. Sure, there will be ups and downs and bear markets along the way, but over time stocks have proven that they rise substantially more than they decline, and we expect that trend to continue. I don’t have any information about your personal situation, Murray, so I cannot offer you specific advice for whether or not to invest your refund, and how to do it. But I hope my three points above help, and if you want to ask an Investment Advisor Representative from Zacks about your situation, please do not hesitate to reach out. Additionally, in order to plan effectively for the long-term, a good place to start before you decide on whether to invest your refund is to know your net worth. Calculating your net worth can give you a better idea of where you stand in terms of your long-term investment goals, and this can give you a better idea of what to do now with your refund. If you do not currently know your net worth, then there is no better time than now to calculate it. To help you understand how to measure you net worth, download our guide Measuring Your Net Worth. 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