What Your 2025 Tax Refund Could Be Worth Today If Invested in the S&P 500

Tax season often brings a welcome financial boost for many, with refunds that can range into the thousands depending on income, deductions, and credits.

While many people use their refunds for immediate expenses, there’s a powerful alternative: investing. Imagine if you had invested last year’s tax refund instead of spending it — particularly in SPY, a popular S&P 500 ETF.

Key Insights

• As of March 2024, the average federal tax refund was over $3,000.
• Investing your refund in SPY can be a smart way to grow your wealth and reach financial goals.
• SPY generally yields annual returns between 7% and 10%.
• Always evaluate your financial situation and goals before deciding to invest your refund.

The Average Tax Refund in 2024

By late March 2024, the typical federal tax refund stood at approximately $3,050. Refunds occur when taxpayers overpay through withholding or estimated payments, with tax credits and deductions further influencing the refund amount. Deductions reduce taxable income, while credits directly reduce tax owed.

For many, this refund is a significant sum that can be used to pay down debt, make purchases, or ideally, invested for future financial growth.

Potential Growth of Your Refund If Invested in SPY

SPY is an exchange-traded fund tracking the S&P 500, representing 500 of the largest publicly traded U.S. companies. This fund provides diversified exposure across multiple sectors with a single investment.

Although stock markets fluctuate in the short term, the S&P 500 has shown consistent long-term growth. Historically, SPY delivers annual returns between 7% and 10%. For example, as of February 2025, the S&P 500’s 10-year total return was 182.9%.

Nicole Burdick, LPL Financial Advisor and founder of Money Maven Financial, explains, “If someone invested a $3,050 tax refund into SPY on March 31 last year, their investment would have grown by roughly 5% to about $3,302.”

“However, investing on March 31, 2022, would have resulted in an 11% loss, reducing the value to $2,714. The stock market benefits long-term investors but can be volatile if you need quick returns,” she added.

Calculation Tip

You can estimate investment growth using this formula: Initial Investment × (1 + Rate of Return) = Future Value.

Considerations Before Investing Your Tax Refund in SPY

Investing your tax refund in SPY offers benefits but may not suit everyone. Here are factors to weigh:

• Financial Goals: Define your financial objectives and timeline. If you need funds within 1-3 years, safer options like high-yield savings accounts might be better. For longer horizons, investing aligns well with growth goals and risk tolerance.

“Ask yourself when you’ll need this money. Short-term needs call for liquidity and safety, while longer-term plans can accommodate market fluctuations,” advises Burdick.

• Current Financial Situation: Assess whether you have an emergency fund. If not, your refund could be a valuable start to building one before investing.

“While SPY offers growth and dividends, it carries short-term risk. Prioritize paying down debt or building savings if those needs exist,” Burdick recommends.

• Diversification: SPY provides broad market exposure, reducing risk through diversification.
• Risk Tolerance: With typical returns of 7%-10%, market ups and downs can be unsettling. Choose investments matching your comfort level with volatility.

Final Thoughts

Turning your tax refund into an investment can be a strategic move to build wealth over time. Instead of spending your refund right away, consider investing in SPY or similar options. Even modest refunds can grow significantly, helping you achieve long-term financial security and goals.

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