What is everyone doing with their tax refund?
Americans are consumers. We spend more than any other country in the world. We obsess over purchases (instead of investments) and have a financial system that encourages us to buy more than we can afford. Our addiction to spending is the problem. But, we can change this.
If you take all the money in the world and divide it evenly amongst everyone. In no time, the money will end up in the same pockets. — Jim Rohn
Jim Rohn is right. Consumers will spend the money they have, and it will end up right back in the pockets of investors. Think about it — every time a consumer spends money, it drives up the value of a company, and this rewards shareholders. This realization changed my life.
Most individuals aren’t taught anything about investing in school, so they receive a tax refund and make one of two choices; either spend it or save it.
My wife and I decided to invest a large portion of our tax refund each year. This is the strategy we have been using to add an extra million to our retirement funds. If we invest $1,500 of our tax refund each year, it should yield a little over $1 million by the time we retire. This assumes a 13% compounded rate of return over 35 years.
The fear of losing money drives people to stay away from the stock market. This fear is falsely exaggerated and leads to inaction.
Investing is only risky when you don’t know what you’re doing.
I use an investment strategy that guarantees we don't lose money. I do this by creating a portfolio of the best ETFs that are expected to grow at an above-average rate relative to the market. The S&P 500 index gives you the average of the stock market. It has never lost money (on average) for 90 years. Its historic return is 10%. Compare that to the average return on a savings account which is 0.05%.
Look at the difference between an investor and a saver.
Saving money at 0.05% rate of return will take 1440 years for your money to double. No one can save their way to wealth. They have to invest to build wealth. My wife and I know this that's why we are taking advantage of many of select ETFs including the S&P 500 to create our legacy investment portfolio that will earn as an extra $1 million.
What is the S&P 500?
The S&P 500 is an index fund. It is a basket of the top companies in the United States. It's the equivalent of owning the U.S. economy. When you invest in the S&P 500, you instantly become a shareholder of ALL the top companies in the U.S. This is a relatively low risk way to invest for people who are scared of investing. But, the S&P 500 by itself cannot provide a 13% average return. It has to be used in combination with other ETFs.
Can I lose Money with the S&P 500?
The only way you lose money with the S&P 500, is if ALL of the top companies in the U.S. go out of business and fire all of their employees. Can you imagine Apple, Disney, Netflix, Microsoft, Google, Amazon, Home Depot, Visa, Walmart, McDonalds and 490 other top companies all shutting down?
I don’t think that’s going to happen either.
A majority of individuals will receive a tax refund this year and will choose to spend it. I hope this article inspires you to invest your tax refund in a way that allows you to build wealth for your family.
This article is for educational purposes only and should not be considered financial advice.