The best way to save/invest an unexpectedly large tax refund?

So due to a special credit I had no idea existed (thanks, TurboTax!), I’m due to receive about $2000 more from the I.R.S. than I anticipated. Since I’m financially solvent right now and don’t need to spend the money on debt, I’d like your opinions on the best way to have this money work for me.

Bonds? COD’s? The stock market? Should I just let it sit in my savings account? Something else?


How liquid do you want it to be? How much return would you want on it?
You can go anywhere from a money market fund to an index fund in balancing return and risk. Might be a good excuse to start an investment account somewhere and put some money into it every month. In 30 years you’ll be thanking yourself.

If you don’t mind tolerating some short-term risk for a likely long-term gain that exceeds your savings account and bonds, and don’t want to do a ton of research on individual stocks, I’d suggest a mutual fund. If you pick an index fund that tracks the S&P 500, in a typical year you’d see a return of 8-12%, although things have been a bit wild in recent years. If you’re investing it for the long haul, you’re more likely to see an annualized rate of return in that 8-12% range, but any single year could be quite a bit higher or lower (or even post a loss).

Mutual funds like that often have a minimum investment period; if you withdraw before then, there may be a fee, so you wouldn’t want to invest unless you’re confident you won’t need the money soon.

I believe these numbers are too high.

Plus, all the history of the S&P is obviously from the 20th century, which is a time period in which the US saw tremendous economic growth. That might not be replicated in the 21st.

[That said, I myself have some money tracking the S&P, so I’m not knocking it. I figure it’s a way of just going along with the US economy without having to think about it too much. But I would not assume anything like an 8-12% return.]

The truth of the matter is that $2,000 is not a lot of money, investment-wise. The difference between a 7% return and a 5% return on $2K is all of $40. Not something worth agonizing over. A lot depends on whether this is intended as the sum of your investment portfolio, or whether you intend to add to this amount going forward. If the latter, then more thought is warranted.

One other note about mutual funds: be sure to check out the fees. (I believe Vanguard is generally the lowest.) These can eat a lot of your return, especially if you’re only investing $2K.

An extra $2 million can be invested in a variety of ways, especially considering you willingness to invest long term. Have you looked at private equity investments? Secondary private equity funds have been doing very well recently also. Congratulations on your windfall and good luck.

You planning on giving the OP the extra $1,998,000 between the windfall mentioned and the one you mentioned?

How generous. :wink:

If you don’t need high liquidity and would consider something a little “outside the box”, then Lending Club.

To be fair, the 20th century also saw some tremendous economic downturns, as well (see “the Great Depression”).

The annualized return for the S&P since its recognized inception in 1923 through December 31, 2010 is 10.19 percent.

Yeah, but on the whole, if you compare the US position today versus 1923, it’s been a time of tremendous growth.

I stand corrected. Thanks, and apologies to Machine Elf.

Oh, no question. Most of the gains have been made in the last 30 years or so, I think.

Here’s the recommendation I always post in threads like this:

  1. Ignore all other posts except this one.

  2. Invest in an education about how to invest. A decent place to start is

  3. After you do 2, you’ll understand the reason for 1. No one can possibly know all the facts relevant to the decision, and no one cares about the outcome as much as you.

Do you think the OP is willing to keep his $2 grand socked away for 87 years?

If he is willing to hold it that long he would have a bit over $9 million.

Do you have a 3-6 month emergency fund in liquid cash?

If not, use this to start one.

If you do, then you can start reading and/or Michelle Singletary’s Personal finance column at the And do not invest in anything unless you understand the risks associated (there is risk with every investment, no matter what the pretty brochure tells you_

Thanks for the advice everyone. MareIt makes a very good point: perhaps I don’t have as much in savings as I should.

My new question is: is there a vehicle that earns a better interest rate than a simple savings account, but holds comparable liquidity?

I of course will be talking to my bank, but I wanted to see what people here thought, too.

Talk to a financial adviser. See Waddell and Reed “Office Locator.” When we finally figured we were adult enough to seriously think about retirement, we sat down with an adviser and figured out what we really needed to save for the future. I wouldn’t go to a bank. They never really seemed to have my best interest in mind. The Waddell and Reed people (or at least my two different advisers we’ve had) have been really helpful.