This Growth Stock ETF Could Increase Your Annual Income If You Put Your Tax Refund Into It

Tax refunds can help you become a millionaire by the time you retire if you put in enough time and effort.

Tax season has arrived, which means tax returns for a lot of people. Although it may be alluring to travel or indulge in a major purchase, you might want to think about preserving your tax return. If you can’t afford to save on a regular basis otherwise, doing so annually can help prepare you for retirement success.

Here is how much money you could accumulate in your portfolio if you invested your annual tax refund below.

Reasons to think about investing your tax return

Although your taxes will change every year, the average refund for the most recent filing season (2022) was $2,753. The average for the two years before that was $2,865 (2020) and $3,012 (2021). That comes out to $2,877 on average over the last three years, and I’ll use that figure in my example.

Your tax return may be able to help if you normally struggle to find money in your budget for investments and savings. A $2,877 lump sum investment is the same as putting aside about $240 a month. The outcome might be a far more comfortable retirement, as you can see here.

How big may a tax refund-based portfolio get?

You could find it difficult to decide where to invest your tax refund, even if you have one available. An exchange-traded fund is a straightforward remedy (ETF). An especially appealing choice may be a growth-oriented investment like the Vanguard Growth Index Fund (VUG -0.57%).

With a low cost ratio (0.04%), this ETF offers investors exposure to more than 200 stocks, many of which are leading growth stocks globally, such as Apple, Amazon, Tesla, and many more.

Such a fund will assist set you up for returns that are higher than usual. The fund has produced a 309% total return (including dividends) during the last ten years. This translates to a 15.1% compound annual growth rate on average.

Here is how much your portfolio balance may increase by investing the typical tax refund each year if you start at age 35 and get a 15% yearly return.

AgeYearBalance
405$22,307.51
4510$67,175.87
5015$157,422.17
5520$338,939.72
6025$704,036.34
6530$1,438,376.05

Calculations by author.

By the time you approach retirement, the force of compounding could have helped you accumulate far over $1.4 million. Even while your final returns might not be as high as 15%, investing your yearly tax return might still help you have a stable financial future when you retire.

Invest your tax refund if you can afford to

It might not be able to invest your entire tax refund each year due to your unique situation. That’s alright; even only a portion of your reimbursement should be diverted.

In the end, the attraction of this technique is that it’s typically simpler for people to withdraw from this annual payment than it is to try to make space in their budget each month for investments. To make things even easier, pick an inexpensive, diversified exchange-traded fund (ETF) such as the Vanguard Growth Index Fund, and you should have no trouble achieving your long-term financial objectives.

Is it currently a good idea to invest $1,000 in the Vanguard Growth ETF – Vanguard Index Funds?

Think about this before purchasing shares of the Vanguard Growth ETF or Vanguard Index Funds:

The Motley Fool Stock Advisor analyst team has determined the top ten stocks that investors should purchase right now. and Vanguard Index Funds, of which the Vanguard Growth ETF was not. In the upcoming years, the ten equities that made the cut might yield enormous profits.

Stock Advisor gives investors a clear road map for success that includes monthly stock recommendations, regular analyst updates, and advice on constructing a portfolio. Since 2002*, the return on the S&P 500 has been more than tripled by the Stock Advisor service.

Leave a Comment