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7 Big Ideas for Getting the Most Out of Your Tax Refund

According to the most recent IRS data, the average income tax refund is just over $3,000. Not bad. Too often, though, what seems like a nice fat windfall disappears faster than expected. But squirreling it away into a savings account at today’s interest rates will earn you nothing. You work hard for your money. Is it too much to expect it to work hard for you?

How much is enough to invest?

Getting a lump of cash that’s above your normal budget should be a golden opportunity to invest. But here’s where things get tricky: many blue chip stocks hover between $100 and $200 per share—some share prices are even higher.  And no matter whether you buy a single share or a handful of shares, making a one-off investment in any single stock is extremely risky. The only way to protect yourself from betting everything on the wrong stock is to invest in a variety of different things—i.e., to diversify.

You might be able to diversify with the right mutual fund. But experts such as Suze Orman and Kiplinger’s Personal Finance caution that most mutual funds require a minimum investment—frequently in the $1000 – $3,000 range. So you may not have enough to get into the mutual fund that fits your goals and risk tolerance. And even if you do, you’ll be paying for the privilege through the expense ratios imposed on all mutual funds. That means a percentage of your account balance will be subtracted in order to cover the cost of managing the fund.

No matter how much you’re starting with, you have more options than you thought.

Folio Investing is an online brokerage that allows you to create diversified portfolios called folios and fill each one with up to 100 of the securities you want, investing the dollar amount that works for you—no minimums. This is possible because Folio is one of the few brokerages where you can buy and sell securities by the dollar amount instead of the share amount, even when that means trading less than a full share. In addition to stocks, you can also fill your folios with ETFs and mutual funds—although the mutual funds may have investment minimums. If you don’t want to create your own folios, you can choose from over 160 free, pre-made Ready-to-Go (RTG) folios that you can invest in as-is or customize however you see fit.

So what can you do to invest your tax refund?

Here are 7 ideas:

  1. Go for the long-term growth (more than 8 years): Investors with longer time horizons can often handle more volatility. If you’re in it for the long haul, you might be interested in the Long-Term Aggressive.This folio aims at long-term capital growth by taking on more risk for a greater potential return. It holds a collection of ETFs representing a diversified mix of asset classes and market capitalizations, including domestic and international stocks as well as bonds.
  2. Sleep well in the short term (less than 4 years): Investors with a short time horizon—or who simply don’t like risk—will find a less volatile investment in the Short-Term Conservative This asset allocation folio was developed for investors seeking income, short-term preservation of capital, and low volatility, and contains a mix of index ETFs for broad diversification.
  3. Go around the world: Your tax refund might not be enough to take you on a trip around the world, but it is enough to take your investment portfolio worldwide. Folio offers an International RTG for long-term growth potential in well-established foreign companies, as well as numerous other geographic folios, including some that focus on places such as Europe, Japan, China, and Africa.
  4. Let your conscience be your guide: Ethical investing means different things to different people. For that reason, Folio provides a stock screening tool that allows you to exclude specific stocks or industries from your investment portfolio, based on social issues and activities that you wish to avoid, such as genocide, alcohol, gambling, and weapons. Create or customize a folio that aligns with your values.
  5. Party on: For the price of a good bottle of wine you can also make a broad investment in the industry that produced that wine. The Wine, Beer, and Spirits RTG has an aggressive long-term approach, investing in the largest companies engaged in the manufacture, sale, and distribution of wine, beer, and spirits.
  6. Become a land baron: Investing in real estate is a famously risky business. But investors who want exposure to the growth potential inherent to real estate can check out several real estate investment trust (REIT) RTGs. These folios hold selections of the largest REITs for a way to invest in real estate that’s more diversified and more liquid than simply buying a building or a plot of land. And you don’t have to deal with the tenants.
  7. Start your own investors’ fantasy camp: Here’s your chance to design your perfect portfolio, investing the dollar amount you want in all those companies you thought you couldn’t afford: Google, Amazon, Tesla—even Berkshire Hathaway, which was recently trading at around $220,000 per share. Open a speculative folio to invest in your picks or those of a professional you follow. Or use a Folio watch account to test out your portfolio without putting any money on the line. This virtual stock trading capability simulates real world trading using the same tools as those in a funded account.


The hardest part of investing is often just getting started. But given the right tools and a small amount of cash—say, no bigger than a tax refund, that first step can be an easy one.

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