Investing Your Stimulus Check? 3 dangerous mistakes to avoid

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At this point, many Americans are seeing $ 1,400 stimulus checks coming into their bank accounts, and while some people are using that money to pay their bills or get out of debt, others have a real opportunity to grab a bargain yet. more important by investing that money instead. .

If you don’t need your stimulus to cover short-term expenses (for example, you’re still working and earning your usual salary), investing might be a great idea. But you’ll want to avoid these big mistakes if you decide to go this route.

1. Buy a single stock

If there is a specific action that you have been considering in the last few months, you may decide to take your raise control and collect some stocks. But before you put all that money into one business, make sure your portfolio is already diverse. If not, you are better off branching out and buying stocks from different market segments rather than putting all of your money into one stock.

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2. Invest in stocks even

Even stocks were all the rage this year. These are stocks that have gained notoriety thanks to social media platforms – think GameStop (NYSE: GME) etc. You might be tempted to buy stocks even after you’ve seen their value skyrocket recently. But the problem with memes stocks is that many of these companies aren’t stable, and their growth is more a product of the media frenzy than actual financial data.

Take GameStop as an example. Its stock price climbed in late January, but at this point it is trading almost 50% lower than eight weeks ago. Instead of buying stocks that get a lot of press, you are better off buying quality stocks with strong potential for long-term growth.

3. Invest at all when you don’t have a solid emergency fund

Just because you don’t need your stimulus to pay short-term bills doesn’t mean you can afford to part with that money. If you don’t have a solid emergency fund – one with enough money to cover at least three full months of living expenses – then you shouldn’t invest your stimulus at all.

Instead, you should put that money into a savings account so that if you face a big unexpected expense or lose your job, you have cash reserves to lean on. While it’s true that investing your stimulus will help you grow your wealth faster than a savings account, you also don’t want to run into expensive debt if you don’t have enough money. money in the bank.

Chances are, this current round of stimulus checks will be the last bargain the public will see for quite some time. And to be clear, that would actually be a good thing, because it would mean an economic recovery. Investing your stimulus money is a good way to get the most out of that money, but be sure to avoid these big mistakes so you don’t regret your decision.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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