Don't make this mistake with your new $1,400 stimulus check
It may be tempting to take your new stimulus checks and go all in on chasing upward momentum in assets such as stocks and bitcoin, but it's likely a better approach to practice some patience and discipline to protect against downside risk.
"This is not a time to simply throw or invest your stimulus funds in the most volatile assets," cautioned Mohamed El-Erian, Queens' College, Cambridge president and well-known investor, on Yahoo Finance Live. El-Erian is the former CEO and co-chief investment officer of bond powerhouse Pimco.
He suggests people have a more "tactical" mindset when putting their stimulus checks to work for them, and emphasizes it's important to take the time to research any stocks.
El-Erian isn't alone in pounding the table on a measured approach to spending stimulus money once those checks hit the bank account.
"If you are getting a stimulus check, that means you need the money to survive, you need the money to buy food to possibly pay rent, to keep your utilities on," personal finance expert Suze Orman told Yahoo Finance Editor-in-chief Andy Serwer. "If you're going to take the money to put in the stock market, in my opinion, you do not need a stimulus check."
Orman believes people should save their stimulus checks.
The latest round of stimulus checks will be sizable, so households have some tough asset allocation choices to make. Roughly 90% of American households will be eligible for stimulus checks, according to CNN. For those eligible, they stand to receive a $1,400 check. Considering dependents are included, a couple with two children could receive up to $5,600.
Unfortunately, many households are likely to do the opposite of the sage advice from money experts like El-Erian and Orman.
A new survey out of Mizuho Securities this week estimates that 10%, or nearly $40 billion of the $380 billion in direct stimulus checks, may be used to purchase bitcoin and stocks. Mizuho managing director Dan Dolev and his team surveyed approximately 235 individuals with less than $150,000 of household income. Of that, about 200 said they expect to receive the third round of direct stimulus payments in the coming days.
Nearly 2-in-5 check recipients expect to use some portion of their checks to invest. And stimulus check recipients prefer bitcoin over stocks, according to the survey.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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