How to create your investment portfolio with your tax refunds in the US?
Investing has become quite an easy task today and with so many options available it is easy for common people to utilize their savings for achieving the dreams and accomplishing long term goals. How to become an investor if there are no savings? This is a thought which can creep into your mind when you think about investing. Without a considerable amount of savings, the investment portfolio seems to be a distant dream. But, in the US you have a simple way out. You can use your tax refund as an option to initiate investing in the stock market.
Stock market scenario
During the year 2012, according to the reports generated by IRS the average tax refund in the US was 2,803 and this amount is enough to start investing with the help of a brokerage account. Investment can be done by a very little less amount itself. Today the market condition is quite good and it is being addressed as a “bull market” which means a market in which the prices of the stocks of companies are rising and people are interested in buying shares. Investments into shares can be a good decision right now as the performance of the stock market is quite good now. In the last 4 years, there has been an average annual return of 17% in the stock market which makes investing a good decision for common people.
This performance of the stock market is much better as compared to that of other investment options such as money market funds, bonds, real estate, certificates of deposit, etc. But, along with the high returns, there is a huge risk associated with the stock market even. The major risk which is associated with the stock market is the fluctuation in the returns. The returns obtained keep on changing rapidly from one day to another or even from one month to another. However, in the long run, if you are interested in achieving long term goals the best investment option is the stock market. With proper risk assessment and risk analysis, the stock market can turn out to be a great investment option.
Use of tax refund for making investment
- When you receive your tax refund for a year, you can open an Individual Retirement Account (IRA) with the help of your investment brokerage firm or your bank itself. With the help of the IRA, you can invest and obtain tax benefits. When you are putting money into your IRA, your taxable income reduces and you pay less tax.
- When you have opened your own IRA, you can pick mutual funds for making investments. A mutual fund is known as a collection or assortment of bonds, stocks, and cash alternatives. Mutual Fund helps in managing money from different investors and even the small investors can manage their funds with the help of professionals.
- There are numerous funds with different objectives that are available and you can easily pick a fund of your choice according to your long term goals. You can select funds for stocks or funds for bonds or even funds for a mixture of both stocks and bonds.
- The fund which you wish to select for investment depends on the amount of risk you are willing to take when it comes to your money. We can illustrate this with the help of an example such as stocks involve a higher amount of risk but bonds are less risky than that of stocks. But, stocks provide higher returns as compared to bonds and you will need higher returns for accomplishing your long term financial goals. So, it is your choice to take up the risk with stocks for higher returns or to play safe with bonds.
- The amount of risk you can take depends on how much time you have for the accomplishment of your financial goal. If you have a long time left for retirement then you can go ahead and take certain risks.
- Using your tax refund as an investment is the beginning; after opening up your IRA account you can opt for investments to be made automatically for making contributions to the IRA account every month.
Hence, with these investment avenues, your finances will change and you would become an investor with long term financial goals. So, you should file your taxes on time and utilize your tax returns as an investment option.