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Many Young Investors Put Stimulus Money Into Stocks — How It Could Backfire

·2 min read
Indieep_sounds / Getty Images
Indieep_sounds / Getty Images

Nearly one-third of investors who got stimulus money during the COVID-19 pandemic invested part of it, according to a new survey. However, it was younger investors who were particularly prone to do so. But whether or not they should have depends on who you ask, with many financial experts stating that stimulus money would have been better spent elsewhere.

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The latest CNBC/Momentive Invest in You survey found that of respondents between the ages of 18 and 34, nearly half (49%) invested some of their stimulus checks. About 15% invested in individual stocks, 11% in cryptocurrency, 9% in mutual funds and 8% in exchange-traded funds. The pandemic itself likely played a big role since many Americans were stuck at home with a lot of time on their hands — and easy access to online investing.

“During the pandemic, there were a lot of people who weren’t as distracted with their normal lives,” certified financial planner Misty Lynch, director of financial planning at Dedham, Massachusetts-based Beck Bode, told CNBC.

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More than a quarter of investors polled began investing within the last 18 months, CNBC reported, while 73% began in 2019 or earlier. Momentive surveyed 5,523 U.S. adults between Aug. 4 and Aug. 9, 2021. Of those surveyed, 45% identified themselves as investors.

Of course, not everybody supports using government relief money for investments. Financial guru Suze Orman thinks the money would be better off in a rainy-day fund.

“I don’t think you can have too much of an emergency fund,” Orman told CNBC.

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One reason the host of the “Women & Money” podcast believes stimulus money should go to an emergency fund is because the pandemic rewrote the rules about how many months an emergency fund should cover. While Orman previously supported an eight-month emergency fund, she now advocates for 12 months.

“It’s been approximately one year since the pandemic started — 12 months,” she said. “And really, it’s still going on. There are millions of you that still don’t have your jobs back, especially women. We really took the hit. So, it’s 12 months minimum is what I think you need.”

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In addition to ensuring your stimulus money can cover emergencies, how you choose to invest could prove detrimental should you decide to put your funds into cryptocurrencies or meme stocks. Experts including New York-based CFP Tom Henske warn that this could create bad habits and that investing wisely “is all about habits and discipline.”

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Last updated: August 25, 2021

This article originally appeared on GOBankingRates.com: Many Young Investors Put Stimulus Money Into Stocks — How It Could Backfire