With the Fed depositing a fresh round of "free money" into the pockets of most Americans, the focus now turns to where the money is eventually going to wind up. Will it boost financial assets? Crypto? Will it finally hit consumer prices and cause a tick up in inflation?
These are the questions that a new Bloomberg survey sought to answer earlier this week. As Americans enter what is hopefully the closing stages of the Covid pandemic and we attempt to get back to some form of normalcy, questions were abound about how a third (and perhaps final) stimulus would be rationed.
Respondents to a new survey said overwhelmingly that the money would go to things like saving, food and housing, first and foremost. Following that was paying down credit card debt, home improvements and healthcare.
Financial advisers are telling people they can diversify with how they dole out the newly acquired cash. Scott Cole, president of Cole Financial Planning and Wealth Management in Birmingham, Alabama, said: “You save some, you give some and you spend the rest. You could say, ‘I would like to pay down some debt, stick a little in my cash reserve and still have a little bit to do some fractional trading,’ if you want to.”
Right. Because "fractional trading" often comes up in conversation with the everyday American. Finger's really on the pulse there, Scott.
Regardless, here's some other financial advisor takes on places where people can allocate their newfound stimulus money.
Clean Energy ETFs and Small Cap Stocks
Dave Alison of Palo Alto-based Alison Wealth Management told Bloomberg: “If you are bullish on clean energy based on President Biden’s plans, an ETF like the Invesco Solar ETF (TAN) or the iShares Global Clean Energy ETF (ICLN) could be a way to enhance return if your speculation comes to fruition.”
Another financial advisor Kevin Hegarty, principal at Hegarty Advisors in Garden City, New York, is suggesting small cap value stocks.
Paying Off Debt And Student Loans
Ryan Frailich, founder of Deliberate Finances in New Orleans says to try and make an impact on your monthly expenses - but don't pull the trigger all on student loans just yet.
He said: “If there is a way to pay something off, it’s a really good idea — with a slight caveat around student loans. Let’s say you have exactly $9,800 in student loan debt and you drop $3,000 of your stimulus into your student loan, and three months from now they give a blanket forgiveness, then you literally just burned $3,000. There’s no rush in paying it off now.”
What moral hazard, right Elizabeth Warren?
Meme Stocks and Crypto
Believe it or not, some financial advisors aren't totally against speculation in meme stocks or crypto. Tony Molina, senior product specialist and CPA at Wealthfront Corp. told Bloomberg:
“Crypto is clearly a part of our modern economy going forward. That doesn’t mean that it should be a major part of your investment portfolio. If you want to do 5/10% of your portfolio in crypto because you feel you should be part of that asset class, I get it. The majority of people who try to buy and sell individual stocks — especially when they try to day trade — the majority of those people long-term don’t come out ahead.”
“People talk about, ‘Should I invest in Bitcoin, should I invest in Tesla,’ and that’s the wrong way to construct the framework around investment decision making. I understand a lot of people want to reach for those things because they’re exciting and in the news. Consistently investing whatever happens to be in the headlines for a two or three month period is a terrible investment strategy.”
Chris Struckhoff of Lionheart Capital Management, based in Irvine, California offered up takes on how to stay semi-liquid and avoid super-volatile investments if, for example, you may need the money within a year. He likes municipal bonds, utilities and telecom stocks, the report notes.
"They have under-performed for a long period of time, but this year they're off to a good start as many are concerned about inflation," Hegarty added.
If You Just Want To Forget About It: Mutual Funds
Kristi Sullivan of Sullivan Financial Planning in Denver says if you want to just forget about the money, consider an all-in-one mutual fund. "These could be target-date funds, which are designed to become more conservative as time goes on, or asset allocation funds," she commented.
Building An Emergency Fund
Struckhoff also tossed around the idea of staying in cash and creating an emergency fund; “It sounds super boring, because it is. That may help you get back to work faster or stay engaged at work knowing there is that cushion.”
Scott Cole added: “If you don’t get these little windfalls too often, if this is what encourages you to start a cash reserve that would be a first place I would look at. It’s probably the least exciting, sexy approach to using a stimulus, but it’s probably the most prudent because hopefully we don’t have another pandemic in our lifetime but we will have something.”
Perhaps neither guy got the recent memo: the Fed is your new emergency fund.