Getting The Most From A Tax Refund

For the people that have received or will be receiving a tax refund this year there can be a lot of indecision on how to spend the funds. Some people like to take their refunds out for the latest phone or clothes, and, for others, it is a prime investment opportunity. For people that want to invest or start investing there are some great ways to use a tax refund to get started.

Reducing large interest debts before starting to invest is a good plan. Interest from credit cards or loans can cause debt to spiral out of control quickly and can leave the debtor paying them off for years. It’s completely counterproductive to work on investing when losing double the investment gain in debt interest. Tax refunds can be used to pay down these debts or make a good dent in the ones with the highest interest payments. This will allow an investor to use the money they would have spent on interest to increase their financial security.

Putting your refund into a down payment for a new home or into an existing home’s equity is another good way to get the most from a tax refund. An investor shouldn’t be too worried about achieving much gain from this plan but these are ways to have your money sit in a savings account or short-term fund so it will be there when you are ready to buy. If a home has already been purchased then paying down the mortgage will add equity and reduce loan times.

Investors that are more interested in the long term and want to invest their tax refund could invest in their workplace 401(k) to get the maximum match amount from their employer. Middle-aged investors that are looking to build their retirement account can consider opening an IRA with their tax refund to get a head start on post retirement income.

If an investor already has a good 401(k) a tax refund can always be used to diversify. Stocks bonds or funds with a refund could be a great new investment. Round out sectors that are of interest and then use exchange-traded funds. The same theory can be used for those close to retirement but instead of exchange-traded funds look into bond funds.

There are many ways to use your tax refund in investments, but the one way that most advisors agree is the wrong way is to invest in a single stock. This doesn’t complement portfolios if an investor is already diversified. Investing in ETFs instead is a better option.