Wondering what to do with your tax refund?

• Getting a tax refund this year? Resist the urge to splurge and invest in your future.
• Consider using the refund to shore up your finances and seek long-term growth by investing in ETFs.
• iShares Target Date, Core, and Thematic ETFs can help answer the “what to do with my refund?” question with simple, low-cost and tax-efficient strategies.

For most people, Tax Day is more likely to inspire dread than enthusiasm. But for the approximately 64% of Americans who received a tax refund this year, the day merits some celebrating — and some planning for how best to make use of it.¹

As of tax day (April 15, 2024), the average tax return this year has been $3,011, a 5% increase from last year’s levels.² An unexpected windfall can make for tempting fodder for a spring shopping spree, but we believe that lump sum presents a prime opportunity to kickstart your investing goals — or save for an even bigger purchase in the future. Because of the benefits of compounding, a little invested today can translate to a lot tomorrow. For investments, the most valuable thing you can add to your portfolio is time. Consider investing your refund today, and your future self will thank you.

If you want to invest, but don’t want to make investing your full-time job, target date funds can take the guesswork out of retirement investing. Rather than deciding how much to allocate to stocks, bonds or commodities, buying a target date fund lets you set a target date and the fund automatically manages risks around it.

In practice, that means that the longer investment horizon, the higher the share of stocks in the portfolio. While stocks have recently generated positive returns (to the tune of 12% annually, over the last ten years), those rewards are not without risk.³ In 2022, for example, equity markets dipped nearly 20% as aggressive monetary policy, the Russia-Ukraine conflict, and recession fears halted a three-year streak of positive gains.⁴

If the year an investor needs cash happens to align with a steep market pullback, years of returns can be wiped out. But target date funds can guide outcomes with more reasonable certainty by adjusting the mix of stocks and bonds as the target date approaches. This can help dampen the impact of big short-term moves in price action. For investors eyeing their golden years, target date ETFs can be an important tool to getting there in style.

If you watch financial news, you may have been led to believe there is such a thing as “the market”. There are, of course, many markets — where anything from stocks to cocoa beans are bought and sold. But what many people mean by the shorthand are broad U.S. equity indexes such as the S&P 500.

If you like the idea of getting invested, but don’t have strong views on the direction of cocoa (other than being delicious), an allocation to “the market” can be as simple as the iShares Core S&P 500 ETF (IVV). Opting for a low cost, core solution (no sit-ups required!) can be one of the most efficient ways to invest over the long term.

For investors who want to tweak their core holdings to be more intentional, rather than casting their nets wide for simply the top 500 largest companies in the United States, the iShares MSCI USA Quality Factor ETF (QUAL) is another perennial favorite.

The quality factor is designed to work in any business cycle but may be particularly compelling in an environment of heightened geopolitical uncertainty and higher for longer rates. This sector neutral ticker has outperformed the S&P 500 over the last decade.⁵ (Learn more about our continued conviction in the quality factor in our Spring Investment Directions.)

Thematic ETFs allow investors to tap trends that are expected to play out over years and decades rather than weeks and months — think generative AI, autonomous vehicles, or even cryptocurrency. Carving out a portion of your tax refund for thematic ETFs allows for an investment in cutting-edge industries. You can lean into technological innovation, participating in the growth and impact of core themes shaping our world.

A few of our current favorites:

• Healthcare innovation, whether it’s through groundbreaking drugs such as GLP-1s or medical technology to screen for rare cancers, is transforming treatments and extending lives.
• Cryptocurrency is revolutionizing finance with decentralized blockchains and digital currencies. Eleven spot Bitcoin ETFs hit markets this year in a watershed moment for the crypto industry, and the iShares Bitcoin Trust (IBIT) currently reigns as the second largest asset gatherer this year out of nearly 4000 U.S.-listed ETFs.⁶
• Tech Independence offers exposure to targeted companies benefiting from structural U.S. reshoring trends, utilizing machine learning and language processing to identify those names. While familiar juggernauts earn heavy weights in our iShares U.S. Tech Independence Focused ETF (IETC), the active fund has over doubled the returns of the tech-heavy Nasdaq 100 so far this year, widening the gap of 2023’s outperformance.⁷

The iShares Bitcoin Trust is not an investment company registered under the Investment Company Act of 1940, and therefore is not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940.