Become a Real Investor with Your Tax Refund

401K, IRA, Stocks

En Español

Investing has never been easier than today with all the options available for people to really use their savings to achieve the dreams and goals for the future. No savings to become a smart investor? Consider your tax refund to start investing in the stock market like a professional.

Young cheerful couple doing their taxes.

According to the IRS, the average tax refund in 2012 was about $2,803 and that is more than enough to open a brokerage account and start investing your savings for the future. In fact you can start investing with a lot less.

It is an interesting year for investors. After the Financial crisis of 2008 and 2009 the stock market has recovered and now we are in what experts call a “bull market”, a market in which prices of company’s stocks are rising and investors are encouraged to buy shares.

The performance of the stock market is remarkable. From the bottom of the market in March 2009 to February 2013, the price of stocks has risen 89% based on the S&P 500, the stock index composed by the leading 500 companies in the US. That represents an impressive average annual return of 17% in the last 4 years.

That return outperforms by far other investment alternatives such as bonds, money market funds, certificates of deposit or real estate. However, there is more risk involved when investing in the stock market. That means the returns change a lot from one month to the next or even from one day to the next.

But the stock market is a good alternative to achieve long term goals such as retirement when the risk is properly managed and balanced with your age and goals.

Your tax refund could be your pass to the world of investments:

-As soon as you get your tax refund this year, go to an investment brokerage firm or even your own bank and open an Individual Retirement account (IRA). An IRA is a vehicle in which you can invest your money and obtain a tax advantage: every dollar you put  in the IRA is reduces  your taxable income so you pay fewer taxes as you invest your savings.

-When you have your IRA, you can pick mutual funds to invest your money in. A mutual fund is a collection of stocks, bonds and cash alternatives. The Mutual Fund manages the money from many investors (hundreds or thousands) and that allows the small investor to have their money managed by professionals.

-You can pick among thousands of different funds with different objectives. There are funds for stocks, for bonds or funds that invest in a mix of stocks and bonds.

-Your selection of the fund depends on the risk you are willing to take with your money. For instance, stocks are riskier than bonds. However, in the long run the annual return for stocks tends to be higher. And you will need a higher return to achieve long term goals like retirement.

-How much risk can you take? It all depends on the time you have to achieve the goal. If you have 20 years for retirement, you can take a lot more risk than if you plan to retire next year.

-The tax refund is only the starting point. Once you open the IRA account you should sign up for automatic investments to contribute every month to the IRA account.

-Your finances are going to be transformed because you will be officially an investor with real long term goals.

– Haven’t filed your taxes yet?  Go online and file your taxes so that you can get your tax refund as soon as possible, make these smart investment moves with your tax refund, and keep more of your hard-earned money.

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