If you want to dip your toe into investing and have $1,000 to start, then you’re on the right page. Below you will find 10 smart ways on how to invest $1,000.
There are quite a few options to start investing $1,000 into. Some of them are riskier than others, but they can provide better returns. So it’s up to you to decide which of these will work the best for you.
1. Focus on your financial health
First of all, before you learn how to invest $1,000 you should make sure that your financial situation is in a good shape.
You don’t want to start investing $1,000 in stocks with the risk of losing it all, without making sure that you have some basic financial things covered first:
- Pay off your debt – Try to lower your debt as much as you can before you start investing.
- Create an emergency fund – A rainy day fund and an emergency fund is a must.
- Save money regularly – You should automate your savings to make it easier.
- Diversify your investments – Don’t invest $1,000 into just one thing, try to spread it out so as not to risk the chance of losing it all.
- Watch out for fees – Some of these methods and services will have fees, so always take those into consideration when investing $1,000.
But really the most important part is to pay off your debt or live more or less as debt-free as possible. Paying off your debt first will give you more benefits in the long run, than simply investing $1,000 into bonds for example.
An emergency and rainy day fund is also important to have before you start investing.
You never know what might happen in the future (anyone had a global pandemic on their 2020 calendar?), and so you want to make sure that you and your family are covered at least for a few months.
Ok, so now that we got that out the way, and you know for sure that you can afford to invest $1,000 let’s continue with our article and see some smart ways to invest $1,000.
2. Open a High-Yield Savings Account
Just like I mentioned above, you want to make sure that you save money regularly. Well, you will need somewhere to store all your saved money.
A high-yield savings account might be the perfect place just for that. Not only you will get to save money but you will also earn a bit on top of the interest rate that the bank will pay you for keeping your funds with them.
Basically, the bank account will use your money to run their business for example lending it to other people and businesses, and because of that, they will pay you an interest rate.
Don’t worry though, your money is safe, and you can withdraw it pretty much any time that you’d like to.
Also, high-yield savings accounts are insured by the FDIC up to $250,000 so in case that the bank fails (very unlikely that will happen), your money will be secure.
Online savings accounts usually pay a higher than the average interest rate, so make sure to check out and compare rates with some online banks too.
3. Invest in your 401(k)
What a better way to invest $1,000 than into your future, more specifically your retirement. If your company has a matching 401(k) bonus, then every money you will put into your 401(k) your company will also match it, meaning that essentially you get to earn free money.
Sure, not all companies will have a matching 401(k) bonus, but most do, so make sure to check with your HR to see if your company does.
Basically, the way it works is simple: Let’s say that you want to invest 5% of your salary into your 401(k) then if your company offers a full match, it will also add 5% of their own money to your 401(k).
Some companies do full match, others do half, but in general it’s between 3% to 6% of your paycheck. Also, the whole process is completely automatic.
Ok, you won’t exactly invest $1,000 directly, since this works based on percentages of your salary, but hey, it’s still a smart way to do it.
4. Invest in an IRA
But what can you do if your company doesn’t offer a 401(k) or if you’re self-employed and don’t have access to one? Well, it’s simple, you open up an Individual Retirement Account, also known as an IRA.
Yes, you won’t have a company matching your investments, but it’s still a great option to consider, especially if you don’t have a 401(k).
You get to have some nice tax benefits, depending on the type of IRA you open, (traditional IRA or Roth IRA), your contributions will either be tax-deferred or grow tax-free.
Another great benefit of opening an IRA is that usually, the minimum deposits are low, or even non-existent.
5. Put $1,000 into a taxable account
A taxable brokerage account is a bit similar to a savings account, but with the difference that you will use this account to invest directly into stocks and ETFs.
You could also use these accounts to invest in mutual funds or do options trading, but those are a bit more expensive and it’s best to leave those for another time.
Some popular taxable accounts are Ally Invest and Betterment (no affiliation with these companies, they are just good and stellar reviews).
6. Buy Exchange-traded Funds (EFTs)
If you’ve done the above steps, now it’s time to actually go ahead and invest $1,000. The first option would be to invest in EFTs.
EFTs are great to start with because they have lower fees than other methods and don’t require such high minimum deposits to get started like with other mutual and index funds.
You can start buying exchange-traded funds for as little as $5 (which is the price of a single share), so you could buy a lot of shares for $1,000 and diversify your portfolio.
Watch out for the brokerage fees though, so try and buy commission-free ETFs if it’s possible.
7. Invest $1,000 using robo-advisors
If you don’t want to do all the groundwork yourself of managing your investment portfolio, then you could use the help of a robo-advisor to do that for you.
Robo-advisors have the same role as a financial advisor, with the difference being that robo-advisors are computer algorithms that work automatically based on your goals.
A great benefit of using a robo-advisor to invest $1,000 is that they have very low costs to entry, unlike brick & mortar financial advisors who will require huge minimum deposits just to get started on your financial plans.
So if you’re looking for a smart way to invest $1,000, well, it doesn’t get more smarter than this, computer AI will work for you automatically based on a couple of questions that you will answer when you sign-up to use one.
The robo-advisor will then invest funds into a couple of ETFs based on your preferences and your financial goals.
Plus, another great reason to use them is that the fees are not that big also, usually, they are about 0.3% per year.
8. Invest $1,000 into Stocks
You could also go ahead and invest $1,000 into the stock market. Sure it might not sound like a lot of money to get started, considering that there are stocks that are worth thousands, but you can buy fractional shares, and still get to own some piece of the company.
With $1,000 to invest, you could build up a nice and diversified portfolio that you can keep for many years.
Unlike other investment methods, you won’t get taxed when your stocks are growing, but only when you decide to sell them and cash out, so this is another great benefit of investing in stocks.
Sure, you will have to do a lot of research before you get started, you want to know a lot of details about the companies that you decide to buy shares from.
You might even want to follow Warren Buffet’s advice and invest in good businesses with solid track records and not invest in companies that might bring you a lot of profit in the short-term but might end up vanishing at some point in the future.
9. Invest $1,000 in Peer-to-peer lending
If you’re looking for a bigger return rate and you’re not afraid of taking some risks (and potentially losing some of that $1,000), then you could also invest in peer-to-peer (P2P) lending.
Peer-to-peer lending is when you invest or more exactly lend your money to other people and businesses that are looking to get a loan.
So essentially you will do what banks do, give money to borrowers, which in turn will pay you back plus an interest rate. Some will pay you higher interest rates than others, depending on how risky their loan is.
To avoid losing all your money when doing P2P lending, it’s best that you don’t lend or invest $1,000 into just one person. You want to diversify again and split it up at least in 3 or 4 ways, because if something goes wrong and someone can’t pay on time or at all, at least you won’t be losing 100% of your money.
A popular platform to start investing in P2P is LendingClub (no affiliation).
10. Invest $1,000 in Low-Risk Bonds
If you want to invest $1,000 but don’t want to take too many risks, then investing in some of these low-risk instruments can be the right option for you.
Here are some popular and low-risk ways to invest $1,000:
- Savings Bonds
- Certificate of deposits
- Treasury Bills
- Money Market Funds
- Treasury Notes & Bonds
Sure, you won’t exactly earn a fortune with these, since the returns will be quite modest giving the $1,000 investment.
But at least your money is more secure and don’t have the high risk of losing them all, plus in the end, you will still make a profit, and that’s all that matters.
Final Thoughts on How To Invest $1,000
Well, as you can probably see you have quite a few options on how to invest $1,000. Some methods are riskier than others though and some have higher fees. So it’s up to you to decide your sweet spot between risk and reward.
Whatever you choose to invest your $1,000 into, make sure that you’ve covered some of your basic financial needs, such as lowering your debt, having an emergency fund, and saving regularly.
Also, investing $1,000 will not bring you a fortune right away, investing is still an incremental game, you have to be in it for the long-haul if you want to make progress and see good returns.
Don’t have $1,000 to invest? No worries, learn how to start investing with $100.