Stimulus Checks: Where to Stash Your Cash

April 25, 2008— -- The checks are in the mail. Millions of Americans will start getting checks from the government next week aimed at stimulating the economy.

To find out more about the stimulus package CLICK HERE, and to learn when you should be getting your rebate, CLICK HERE.

Many will pay off bills or other debt. Some will spend their checks buying new goods as the government hopes. And yet others will stash the money away for a rainy day or retirement.

So if you are looking to add to your nest egg, where is the best place to put the money?

"The government might not like to hear it, but certainly, I would allocate some of that money to paying down debt if you have any, particularly higher interest rate credit card debt," said Bruce Tucker, principal at Sterling Financial Planning in Sparta, N.J.

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For those who don't have debt and are looking to invest in stocks, he suggested a low-cost stock market index fund. You can tell how much in annual expenses you'll pay by looking at a fund's expense ratio. For example, a .50 ratio means you'll pay $5 in annual expenses for every $1,000 you invest.

"If you're buying an S&P 500 index fund, you're probably going to be fine if you are holding it for 10 years or more," Tucker said.

He also suggested putting some money into a 529 college savings plan. These plans are sponsored by each state, though you can invest in any state's plan. Though contributions aren't shielded from federal taxes, your return is free of federal taxes provided it's used for education.

"It's not a huge windfall for most people," Tucker said, "but any time you have any extra dollars come in you ought to be prudent in your thinking as to what your family might need."

David McPherson, the founder of Four Ponds Financial Planning in Falmouth, Mass., and an ABCNEWS.com columnist, suggested an investment in international stocks either through a mutual fund or exchange-traded fund. ETFs are traded on the exchanges but hold many stocks for diversification and their expenses are generally low.

"Many American investors lack sufficient exposure to foreign company stocks, even though we use products made by Toyota, Nokia and Nestle every day of the week," McPherson said. "In a global economy, you need at least some international investments. Start small and build from there."

McPherson warned that the stimulus payment by itself may not be large enough to meet the minimum initial investment required for some international mutual funds.

The first of the checks will arrive Monday via direct deposit. Nearly 7.7 million Americans will receive their tax rebates electronically in that first week. Payments are made depending on the last two digits of the main tax filer's Social Security number.