The 2022 tax season is now well under way, and a lot of people have already seen their tax refunds hit their bank accounts. But even if you’re still going through the motions of putting your 2021 taxes together, there may be a solid pile of cash coming your way once the IRS receives your return.
As of mid-February, the average tax refund issued by the IRS came to $2,300. But that number could rise as more returns trickle in between now and the April 18 filing deadline. In fact, last year’s average tax refund came to about $2,800.
Now once you get your hands on that money, you may be tempted to spend it. But what if you could sit back, do nothing, and grow your refund into 10 times its original amount? Doing so is more than possible — and it doesn’t take a lot of skill or effort.
Put your money to work
Investing your money is a great way to grow it into a larger sum over time. But let’s face it — not everyone is equipped to hand-pick stocks. Doing so requires a fair amount of time, knowledge, and research. And if you make a series of bad calls, you could end up losing money rather than making money.
The good news, though, is that it’s easy to enjoy success as an investor without really knowing much about stocks. All you need is to do is invest your money in a broad market ETF, like an S&P 500 ETF, leave it alone, and accumulate wealth year after year.
The S&P 500 consists of the 500 largest publicly traded companies. And so by buying S&P 500 ETFs, you’re effectively putting your money into the broad stock market.
Now before we go any further, let’s be clear about one thing. There’s no guarantee that you’ll make money by investing in S&P 500 ETFs. We don’t know how the stock market will perform over the next few years or decades, and buying ETFs definitely means taking on some risk.
What we do know, however, is that the S&P 500 has delivered an average annual 10.5% return over the past five decades and change. And that 10.5% average return accounts for years when the index performed quite poorly. As such, if you’re investing over a longer period of time, it’s fair to assume that you might enjoy a similar return.
Now, getting back to that tax refund. Let’s assume yours will amount to $2,300, which is the average number we’ve been seeing this season.
If you invest that $2,300 in an S&P 500 ETF and leave it alone for 23 years, you’ll end up with about $23,000, assuming the 10.5% average annual return we just talked about. That money could then help you meet a future goal, whether it’s retiring a few months early or taking your dream around-the-world vacation.
Make the most of that refund
You might look at a tax refund as free money, but in reality, it’s money you earned but waited to collect. And so it pays to put that money to good use rather than spend it on a whim.
Even if you don’t know a thing about investing, it’s possible to turn your refund into 10 times its original sum by relying on the power of the broad market. Doing so could be one of the savviest financial moves you’ll make in your lifetime.
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