How to turn your stimulus check into $13,000 or more with the "Stimulus Stack!"

#stimulusdeposit #stimuluscheck

INTRODUCTION

According to the IRS, people in the United States have started receiving digital deposits of the 2020 stimulus package as early as April 9. Those that have completed tax returns and provided online banking information over the past two years are receiving stimulus funds sooner, and those waiting for a check could be waiting out into the summer.

Many already know what they are going to do with those checks. With unemployment on the rise that money is going to be funneled into appropriate and much needed expenditures.

But a friend recently asked a group of us, "What are you guys spending your stimulus checks on?"

Although the question was in jest (I think), it got me thinking about ways others might be able to put the money to good use - especially if they don't have to cover rent or medical expenses during the COVID-19 shutdown.

THE STIMULUS STACK

Market downturns typically last about 1.4 years.

Anybody that has watched the markets over the past few months knows the dive down was expedient, and our climb back out of this hole will be slow - depending on a multitude of factors including GDP, and infection and death rates to name a few.

The climb out may be better than in 2008, though. This is according to Savita Subramanian, the equity and quantitative strategist at Bank of America. According to her research, software contributes twice the earnings of energy companies now, in comparison with only a third in 2008. And software companies may be able to handle the burden of the current stock market headwinds, while traded goods will continue to be hampered.

First, it's important to understand the goal of the "Stimulus Stack" is to maximize on what many advantageous investors deem a buying opportunity.

Warren Buffet himself said, "Be fearful when others are greedy, and be greedy when others are fearful."

This is a great time to be greedy, but you have to have the right foundation first.

So let's establish a few necessities before the "Stimulus Stack" is considered:

• You have six (6) to nine (9) months of liquid assets (cash, stock) set aside

• You can afford a decrease in your take-home pay each month

• You have a strong stomach for uncertain market conditions ahead

So what's the stimulus stack?

Step 1: Take your $1,200, or $2,400 for a married couple filing jointly, and place that money in a low-cost ETF that tracks the S&P 500.

We've seen the DOW and S&P 500 jump in the past few days, and that's a good sign; however, rough roads still lie ahead as the current stock valuations do not take into account a certain earnings-per-share drop and the fall of our national GDP.

The idea here is that you flood that money in while markets are getting crushed, preferably when they're in the red. How do you know when to buy? Timing the market is difficult, so you can cut it into three or four investments over the next few months if you worry you might not invest when these funds are at their lowest.

When you place your money in an ETF or stock, you technically have access to that money the very next day. Just know you will pay higher taxes for failing to hold that investment for over a year. That's why you want to have enough money set aside that you're not worried about the stimulus funds in the near future.

Step 2: In step two you increase your allotment to your 401(k) to equal the same amount in your stimulus check.

Think about it this way -- you have your original stimulus money around and accessible should something bad come up, so taking a small hit in your take-home pay to put more into your pre-tax, 401(k) won't hurt as much!

Someone making $60,000 a year, if they like being bullish, can take the $2,400 their household gained and cut that into 24, $100 investments into their 401(k).

This increases their retirement contributions by 4%, which is a lot higher than the yearly 1% most would do in their yearly contributions.

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Potential Returns

In the example above, the person may only see a nominal increase in his or her investment 401(k) over the long haul. I'm assuming they back themselves back down to their original percentage once their $2,400 is invested; however, if the investor were to stick to going from, say, 6% to 10% for a 35-year career, he or she could stand to put up over $700,000 more if the market can earn an average of 10% every year.

In terms of the $2,400 being invested in the S&P 500 ETF, here are the following returns over a 15-year span.

• $6,621 at a 7% return

• $10,025 at a 10% return

• $13,136 at a 12% return

Tweak It, If You Want

It is true that most will put this money toward their needs or, even worse, be scared to invest it since they saw the thwack their 401(k) accounts took recently.

So there are a few small tweaks you can make to the "Stimulus Stack" to feel better about where your money is going.

You've probably already figured out I don't like the idea of spending it, or going out and buying yourself a brand new car while you lock yourself into five or seven years of payments.

1. Start an emergency fund and get yourself away from the other 40% of the country that cannot afford a $400 emergency. If you place your money into a high interest, online savings account you can link it to most any bank and keep funding it to reach your savings goal.

2. Start a Roth IRA. If you're young and planning on having children or buying a home the Roth has the triple advantage of being tax free upon retirement, and it allows for emergency withdrawals for buying your first home or paying for college expenses.

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