So you have a $1,000 and you’re ready to invest it.
Here are some ideas for 11 easy ways to invest $1,000.
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What to do Before Investing
We know you’re eager to get investing. We’re eager for you too. But before you dive into the deep end of the investing pool, slow down, take a breath, and decide if you shouldn’t use your money to pay off debt or save it in an emergency fund.
Pay down debt
If you have high-interest debt hanging over your head, use your $1,000 to pay it down rather than investing.
Note that for other, lower interest debt, like student loans or mortgage payments, you don’t necessarily need to prioritize payment. If you can earn a greater return on your money by investing than the interest rate you’re paying on your debt, investing makes more sense.
If you’re weighing whether to drop that money on your student loans or in a high-yield savings account, for example, compare the interest rates on both. If the savings account promises a rate of 2.5%, and you’re paying 3% on a student loan, use the $1,000 to pay down the loan. But if you invest it in an index fund that’s making an 8% return, invest in the index fund rather than paying down extra debt.
Remember that doesn’t mean you shouldn’t keep making your regular debt payments! We’re strictly talking about extra pay downs.
Lastly, weigh the emotional cost of your debt. Is it a major stressor? If you’d feel better by using the money towards longer-term loans or mortgage than investing, there’s no shame in making a choice that reduces your mental stress.
Save a Nest Egg
If COVID has taught us anything, it’s that we should all have several months of living expenses saved for when sh*t hits the fan and work disappears or salaries get cut. In regular times, an emergency fund is useful for those unexpected expenses like medical bills, a car accident, or work layoffs.
Save at least 6 to 12 months of living expenses in a high-yield savings account. We know this sounds like a lot of dough, but it’s always better to have a thicker cushion than a thinner one, you know?
Ideas for How to Invest $1,000
Buy an ETF
ETFs, or exchange-traded funds, work perfectly for low-fee, diversified investments. You can buy an ETF that tracks a certain sector of the economy, like consumer discretionary spending or tech. ETFs provide exposure to lots of stocks or funds for little cost. Look in your brokerage account for commission-free or no-fee ETF that provides exposure to a diversified group of stocks or other assets you’re interested in owning.
Buy an Index Fund
An Index fund is basically an ETF but more specific. Here’s the list of major U.S. index funds.
One note to buying an index fund ETF: not all are created equal. SPY and IVV both are S&P index funds, but IVV has a 0.03% expense ratio, whereas SPDR has a 0.0945% expense ratio.
(If you’re like WTF is an expense ratio…for a 1% expense ratio, that means you’ll pay $10 for every $1,000 you invest. For a 0.03% expense ratio, you’re paying $0.30 for every $1,000.)
You can also invest in an index mutual fund. We don’t love mutual funds as much because they tend to be more expensive and are less liquid, but depending on your situation, it might be a good option for you.
Buy Stocks
There are tens of thousands of stocks, so it’s hard to know what to pick. For beginners, buy something you know and, ideally, something that seems popular and stable, like a consumer stock that’s been around a while. If you need ideas, here is a list with some of the best stocks for beginners.
Buy a Target Date Fund
Target date funds are great for retirement accounts. Got an extra bonus coming your way? Sink it all into your retirement account and buy a target-date fund for some extra security. Target-date funds recalibrate asset allocation annually, so your investments change to match your risk profile as you age.
One caveat with target-date funds: some financial professionals advise that if you invest in a target-date fund, it should be your only investment because otherwise, you’ll skew your allocation to a different risk profile. Say you buy a target-date fund plus other stocks. Now you’re more heavily invested in stocks than is recommended for your target retirement date.
Buy REIT shares
REIT = real estate investment trust
A fancy term for a portfolio of real estate assets. You can buy a REIT share and get returns based on real estate assets you couldn’t afford on your own. REIT portfolios can have assets like apartment rentals, nursing homes, dorm housing, or residential properties.
You can buy REIT shares via ETFs, mutual funds, or even a publicly-traded REIT fund. Some benefits of REITs are exposure to real estate without the hassle, plus higher dividend yields than you might find in stocks.
Buy Bitcoin
At the time of writing, $1,000 is not enough money to buy an actual Bitcoin. However, if you wanted to, you could invest in Bitcoin with the Grayscale Bitcoin Trust, an over-the-counter investment vehicle that works similarly to how commodities like gold or silver trade.
You can buy a share of Grayscale Bitcoin Trust (GBTC) via your online broker or via your retirement account.
Buy Bonds
Bonds are unpopular right now, what with low interest rates, but they’re still viable investments because of their lower risk and steady earning qualities.
Just like stocks, you can buy bonds individually or within a fund or as an ETF.
Start a Dividend Stock Portfolio
More specific than buying regular stocks, use your $1,000 to buy shares of certain dividend stocks. Dividend stocks are great long-term investments because all dividends you earn can be reinvested back into your portfolio, helping your money grow that much faster.
Invest with a Robo-Advisor
Robo-advisors are algorithm-driven investment platforms. Because they’re managed by computers and only supervised by humans, they’re cheaper than paying for a human financial advisor to manage your money.
How it works: open an account with the robo-advisor of your choice and fill out some forms so the algorithm can identify your risk profile, financial goals, and other preferences. Then, deposit money into your account and the robo-advisor does the rest.
For best results, set up regular contributions to your account so your money grows faster. #thankscompoundinterest
Save With a High-Yield Savings Account
Super risk averse? Still saving that nest egg? No worries. Secure your $1,000 in a high-yield savings account. It’s a little bit of the best of both worlds. You’ll earn great interest on your money with zero risk.
If you’re not storing your cash in a high-yield savings account, do it. It’s free money. Just make sure the bank you use is FDIC insured.
Invest in Yourself
Instead of investing your $1,000 in stock shares or an ETF, consider yourself as an investing opportunity. Dreaming about starting a side-hustle or small business? Want to learn a new skill? Buy a course, buy a domain name and hosting for a new website, or simply buy some books to learn from.
It’s scary to invest in yourself because you might fail. The stock market isn’t guaranteed either. Just food for thought.
Account Types to Use for Investing
Taxable investing account
You can open a taxable investment account – also known as a brokerage account – with the likes of Fidelity, TD Ameritrade, Vanguard, or your bank. Out of all the options, we recommend Fidelity, but do what makes sense for you. Make sure whoever you use has no-fee or low-fee ETF options and commissions. That way you don’t pay tons for every trade you make.
Retirement account
You can invest earned income into retirement accounts. (If you’re part of a married unit and your partner makes money but you don’t, you also can invest in a retirement account, as long as both your contributions don’t go over your partner’s allowed contribution amount.)
Money in retirement accounts can be traded pretty much like a taxable account, depending on what platform you use. If you want to trade and move your money more easily, look into transferring your work plan’s 401k into a Fidelity or other brokerage account.
529 Plan
Got higher ed on the brain? Save some money for education expenses with a 529 account. If you have kids, you could also open one in their name and start saving for college (if college is even a thing in 20 years and not just a YouTube subscription…Kidding. Sort of.)
529 plans can also be used for K-12 tuition expenses.
RECAP
There are many ways you can invest $1,000. No way is right or wrong, though one might suit your needs and goals better than others.
Before you invest, be sure you’ve paid off high-interest debt and saved some emergency funds.
For diversified investments consider :
- ETF
- Index Fund
- Bond Fund
- Target Date Fund
- Multiple dividend Stocks
- Robo-Advisor
For non-diversified investments consider:
- Stocks
- Bitcoin
- REIT shares
For super safe investments consider:
- A high-yield savings account
