Here’s how much you could have in 10 years if you invest your $ 600 incentive check

Over the next few weeks, most Americans will receive a one-time injection of $ 600 in cash in the form of a second stimulus check. These payments will provide a slight respite for millions of people who are still unemployed due to COVID-19 and who need this money for basic necessities. But if you’ve been spared the financial devastation of this crisis, investing that check could pay off very well.

How much could your $ 600 increase in 10 years?

Suppose you received a check for $ 600 in December 2010. You invested it in the S&P 500 index, you never touched it and you automatically reinvested the dividends. As of December 28, 2020, you would have $ 2,188. This equates to total returns of 264.7%, or annualized returns of over 13%.

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A few caveats: In 2010, stocks were still recovering from the financial crisis, so you would invest $ 600 at a low level and then ride the longest bull market in history for the next decade. You definitely shouldn’t expect an average 13% annual return in the long run. It doesn’t take inflation into account either. Something that costs $ 2,188 in 2020 would only cost $ 1,833 in 2010.

What if your returns corresponded to a more typical decade? Between 1960 and 2020, the S&P 500 generated average annualized total returns of 10.3%. If you had invested $ 600 in a lump sum and allowed it to grow for 10 years at 10.3% per annum, you would have almost exactly $ 1,600.

Stock returns are obviously never guaranteed. But the longer your holding period, the higher your chances of success. If you invested money at all times in the S&P 500 over a 10 year holding period, you would have made money 94% of the time.

^ SPX data by YCharts

When Should You Invest Your Stimulus Check?

Investing your stimulus check only makes sense if you don’t have financial hardship and are well prepared for an emergency. Don’t let the fear of missing out take over. If you need money for bills, this is absolutely the best way to spend that money.

Using the money to pay off your credit cards should also be a higher priority than investing, as you are likely paying more interest than you would get in return. Also, make sure your emergency fund is in good shape before you invest that money. Aim for six months of living expenses. The best way to protect your returns is to make sure that you don’t need to dip into your investments in a short-term cash flow crisis.

What’s the best way to invest $ 600?

The easiest way to invest your $ 600 is to put it in an index fund that tracks the S&P 500. You get an instantly diversified portfolio of 500 of the largest companies in the United States, like Apple, Amazon, and Microsoft.

You can also use that money to buy a few individual stocks that you have researched. Even though $ 600 doesn’t cover the price of a single share, you can still invest using fractional shares.

But only invest money if you think you won’t need it for the next five years. If your time horizon is earlier, the stock market is not the place for that $ 600. Instead, park it in a bank account.