One trick financial experts recommend for building long-term wealth is investing any “extra” or “found” money, like a tax refund. As your tax refund isn’t part of your daily or monthly budget, socking it away for your retirement shouldn’t create any financial burden on your part, and it can also prevent you from simply spending it.
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Over the long run, it can also really make a difference in your retirement lifestyle. In fact, depending on what you invest in, you may see a significant return even over the course of a single year.
Here’s a look at how much you would have now if you invested your tax refund in Amazon stock in 2023, along with an analysis of whether or not the stock would be a good place for your tax refund in 2024.
How Has Amazon Stock Performed Over the Past Year?
Amazon stock has been a certified winner over the past year, rocketing to an 90% gain. If you invested the average 2023 tax refund of $3,167 into Amazon over that time frame, you’d have about $6,017, a gain of $2,850.
That would have been a worthwhile investment indeed. But it’s also important to note that Amazon fluctuates in value quite a bit. Over the past five years, for example, Amazon has a total return of just 110%. This means that a large part of its gain over the past five years came just in the last year.
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What Are Analyst Projections for Amazon?
Going forward, analysts are bullish on Amazon’s prospects, with a consensus “strong buy” rating among 47 analysts surveyed. The average price target over the next 12 months is $208.48, suggesting a potential gain of around 19%. This is still double the long-term average of the overall stock market and would make AMZN a great investment if the projections were to pan out.
How Are IRS Refunds Sizing Up Compared With 2023?
According to the IRS, the average tax refund as of March 1, 2024, was $3,128. If you were to get that average refund and invest it into Amazon stock this year, you’d end up with about $3,722 in 12 months — if analyst projections are correct.
Other Options for Investing Your Tax Refund
Amazon stock has certainly been a great place to be over the past year and, according to the analysts, that’s likely to continue.
But that doesn’t mean you have to throw your whole refund into a single stock every year. For starters, it will leave you undiversified. If Amazon has a bad year and drops 50%, that could devastate your long-term savings plan.
Plus, to invest in a single stock, you really should put in the time to research and analyze it yourself and not base your financial future on a consensus recommendation.
One option if you want to diversify and/or don’t want to do all of that legwork yourself is to simply buy a low-cost index fund, like an S&P 500 index fund. This will give you affordable access to an investment that has returned about 10% annually over the long run, doubling your money roughly every seven years.
No less than Warren Buffett, the “Oracle of Omaha” himself, told CNBC in 2017 that for the average investor, consistently buying an S&P 500 index fund is “the thing that makes the most sense practically all of the time.”
He added that investors should “keep buying it through thick and thin, and especially through thin.” So, if you’re looking for an alternative to simply buying one stock, like Amazon, that could be a solid option.
Should You Invest Your 2024 Tax Refund in Amazon Stock?
Although Amazon had a banner year in 2023 and analyst projections are strong, there’s no way to accurately predict how its shares will perform over the next year. However, as a general strategy, investing your tax refund is a solid choice.
Whether you should pick Amazon as a specific investment will depend on a number of variables, from your investment objectives and risk tolerance to the nature of your overall portfolio. For example, Amazon might be a great addition if you’ve already got a number of different stocks and need to diversify into technology, but it becomes riskier if it’s the only investment that you own.
If you’re not willing or able to put in the time and research to determine whether Amazon is a good option, consider following the advice of Buffett and dumping your tax refund into a low-cost index fund. Just remember consistency and patience are the key to long-term gains.
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This article originally appeared on GOBankingRates.com: How Much You’d Have Now If You Invested Your Tax Refund in Amazon Stock in 2023
