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Tuesday, June 11, 2013

Investing your tax refund: Good move or bad?

Tax return money that is invested can grow over time
Investing tax refund money helps build financial security
By Patrick Hudson

Most people do not know what to do with the tax refund they get. If you are wondering what you should do with your tax refund, then here are a few options that are worth considering. Of course, you could always go on a spending spree and watch your money going down the drain and regret it later.

The wise thing to do however, is invest the money in one or more of many avaiable investing opportunites. For example, in a social lending account such as Prosper, your money is lent out to individual borrowers, thus earning interest. Alternatively, you could park your funds in a lending club where you are bound to get higher returns than elsewhere.

In case you do not want to invest it right away, you could do other productive and sensible things like. For instance, paying off your credit card dues that have been mounting for a long time. This way you not only wipe out debts, but save money that you would otherwise have to pay as interest at a very high rate.

If you are the type that pays credit card bills promptly, you could also consider investing the money in a bond ladder, certificate of deposit ladder or index funds that do not  require management fees or charges. These methods protect against investment risk, but index funds are a little riskier with the potential for a higher return on investment. Additionally, several mutual fund screeners are available on the web to help you choose funds that meet your investment criteria.

For those of you who do not want to take any sort of risk, you could do the next best thing. Specifically, place the money in a reputable high yield online bank account where you could earn anywhere between 3 to 4% interest on your checking account. If the tax refund amount is quite large, you should get a decent annual return.

Some people believe in buying old coins. Some of thhese coins are worth more than their face value (they have intrinsic value) due to the content. This is especially true for coins minted before 1965, and that have a high content of silver, making them worth more than they denote, and a quarter could even be worth $5 or so.

If you have the entrepreneurial streak in you, maybe you should try to start a business of your own. Today, many of the best businesses operate online, and starting a website of your own does not cost too much and if you know how to go about it you can earn decent returns.

You could even consider investing in gold, which has been a reliable and standard long-term investment for a long time. However, be sure to review economic and maket conditions before making the decision to invest in gold. This is especially true for short-term investors.

For a low risk investment, putting your money in an annuity or Treasury bond will provide you with regular risk free returns. Whatever you do, try to invest the tax refund rather than spend it on frivolous things if you want to make money with your tax return.

About the author: Patrick Hudson currently works at charter cable packages, a site that enables everyone to learn about how to save on broadband and internet cable.

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