When people first look into how to invest $1,000 they quickly learn the options are not as straightforward as many of us think they should be.
When you first start looking around you are going to find minimum deposits that go from $2,500 to WAY more than what you are ready put in right now. The realization that you have to have money to get into so many of these investments is one of the many reasons people give for not getting started with their investments.
The good news is there are lots ways to invest 1000 dollars and still really improve your financial situation.
9 Ways to Invest 1000 Dollars
My goal with any investment is to make sure I am diversified and that my financial situation is continually improving. Since everyone of us is in a different situation financially, do not look at this as a ranking of favorite to least favorite ways to invest your money. Think of this as a group of options where you can find the best fit for your needs.
Let the Robots do the Investing for You
With computers getting smarter and smarter there are now brokerages that allow you to invest, choose your risk tolerance with a short survey, and the robo-advisor takes it from there.
Of the few choices in this category Betterment is my favorite. Betterment takes your investment and invests in low fee, low tax ETFs. These “exchange traded funds” are purchased just like stocks but they are investing in a larger mutual fund. So you get the advantage of investing in hundreds of stocks at one time, but only purchase little tiny pieces of them. Basically, this is instant diversification.
You can actually start an account with no minimum deposit, but to keep the fees low you want to make sure you are able to invest $100 a month. Once your account has a total investment of $10,000 you no longer need the monthly deposit and the fees will stay at 0.25% annually.
Invest in Stocks with the Experts
You could go out and watch a ton of CNBC, buy a bunch of investing books, learn all you can, and then go invest. OR, you could hop over to M1 Finance and purchase groups of stocks that are already picked by experts in a specific industry of the stock market.
Think of it like an expert in one specific industry picking the best companies to invest in. Each “Pie” has a group of stocks that you invest in simultaneously. What makes this really great is that you can invest in all the stocks with no fees.
If you tried to invest in each stock individually with other brokerages it would cost you at least $150. That is some serious savings and you get to diversify.
You can invest in a Pie with as little as $100 and $500 if you are doing a retirement account. Once you are in there are no additional fees even when you make another trade (cashing out your Pie). You can see a full history of each Pie and its performance over time so you have some idea about how good of a group of stocks you are getting involved with.
Lend to Borrowers and Make Interest
Peer to peer lending has become a big winner for many people. The industry has gone through some growing pains lately with the FEC getting involved, but myself and others online have continued to see great returns from our investments.
Lending Club is the leader of the industry and as of this writing has issued more than $20 Billion in loans. This gives us tons of data on how to invest with Lending Club and they are happy to share that information with you as you get your account started.
The sign up process is really easy and you can invest in a single loan with as little as $25. If I were starting off and not sure about the whole process, I would start with an investment of $250.
This allows you to invest in 10 different loans and diversify your investment. People who are investing in a lot of loans (100 or more) are seeing returns in the range of 8%-9% even after losing a couple of loans to default.
LendingClub and other P2P lending platforms have really made it easy to invest and limit your risk in this type of investing.
Pick Your Own Stocks
It has become incredibly easy to start up an online account with a discount brokerage. You can literally sign up, get your deposit into the account and start trading. If you already have some knowledge of the stock market you can get out there and start buying individual stocks.
My favorite brokerages for individual stock investing are Ally Invest and TD Ameritrade if you are looking to do a lot of research and M1 Finance if you are looking to buy small amounts of a bunch of stocks. Each of these brokerages have great online tools and your trades are only $4.95. This keeps your fees low and allows you to maximize your $1000 investment.
Invest Directly in ETFs
As I mentioned above, exchange traded funds (ETFs) are traded on the market just like stocks, but invest in large mutual and index funds. This gives you instant diversification into hundreds of stocks. You can go out and check how that fund has been doing over 1 year, 5 years, 10 years and more.
If you are just getting started in ETFs and want to keep your fees low then TD Ameritrade is going to be the best brokerage for you. They allow you to invest in more than 100 different ETFs with no fees. That’s right, you choose any of their specified fee free ETFs and you get to put as much as you want in there with no fees. It is a great way to get your feet wet trading ETFs.
Start or Contribute to a Retirement Account
If you are not contributing to an employer retirement account and they have a company match then you should always start your investing there. The reason is, when you put money in your employer will also put in a matching amount of funds. Not only is that instant profit, your employer considers this to be part of your compensation when they hire you.
If you do not have this option then there are tons of great places to open a Roth IRA. With a Roth IRA you invest your money after you have paid taxes on it. The money then grows tax free and when you take that money out at retirement, you do not have to pay any additional taxes on it. So whatever taxes you are paying right now on your income are all you will ever pay on that money no matter how much it grows in the future.
If you are a small business owner, you can do a SEP IRA and put yourself in position to start putting big amounts of money into your retirement once the business starts producing larger profits in the future. SEP IRAs are put in pre-tax so you get to deduct them from your taxes now and then pay taxes on them when you withdraw them. Just like the Roth, there are a lot of places to open a SEP IRA and it is a matter of personal preference on which one is best for your specific needs.
If you are going to need the money from your $1000 investment in a short period of time (less than 5 years) then you are going to want to put it in something safe. This means you will want to look at one of the two types of accounts that are insured by the FDIC.
Invest $1000 in a High Yield Savings Account
You could put your money in your local bricks an mortar bank and it will be safe, but it will get less than .05% interest. The good news is that there are many options for high yield savings accounts online that can get as much as 1% interest.
I know that the rates in this low interest environment do not sound super exciting , but we are talking about money that is secured by the banks insurance policy.
Invest your 1000 Dollars in a Certificate of Deposit
A certificate of deposit (CD for short) works just like a savings account but you lock your money in for a specified period of time. This can be as little as 6 months or as much as 10 years. The longer you lock that money in, the higher the interest rate.
Just like their savings account cousins, CDs are at all time lows due to the low interest environment created by the Federal Reserve. Once again, the good news is that there are high yield online CD accounts that will get you a better interest rate than what you get from your local bank.
Pay Off Debt
If you are carrying high interest debt then the absolute best thing you can do is pay off that debt ASAP. This include consumer debt, and any non-house debt you may have. By clearing the debt out of your life you can focus on getting your finances place so that you can consistently invest $500 or more per month. That is where you can build some real wealth.
Invest in Your Knowledge
If there are skills you need to make yourself more marketable and can increase your income every month, then that is an amazing place to invest your 1000 dollars. Whether that is online courses, college course, or trade school, all of these are great ways for you to expand your marketability.
Maybe you are looking for a new career and can start your training with a small investment. I know right now you can get your welder certificate from the tech schools in my state for less than $8000. There is currently a shortage of 240,000 welder in the United States. This means in 30 weeks you could have a job paying more than $50,000 a year with only a high school education and that 30 week training course. If you don’t have a better plan you can work your way into as much as $100,000 per year as a welder with overtime.
How I Would Invest $1000
So in any investment that I am going to undertake I always look to minimize risk by diversifying the investments. For this example I am going to assume we are ONLY investing the $1000 we have. If you are willing to invest $100 per month in addition to your initial $1000 then I would also add in Betterment, avoiding the higher fees by putting $100 per month in the account.
Using this strategy my investment of $1000 can be spread out among high, medium, and low risk investments pretty evenly. Here is how I would break this down by account:
- Lending Club – $250 – LendingClub has become a great way to hedge against shifts in the stock market. With the loans available and high payoff rates I consider this a moderate risk investment.
- TD Ameritrade – $250 – I specifically put TD Ameritrade here because you can invest in more than 100 ETFs with no fees. With $250 you can diversify into several ETFs and put 25% of your investment into hundreds of different stocks.
- Motif Investing – $250 – Motif qualifies as my most aggressive investment. With 25% of this $1000 portfolio wrapped up in just 30 stocks. Personally, I like the idea of doing my research and picking 30 stocks for the investment. If that is not up your alley choose one of the better performing model Motifs that are available
- BBVA CD – $150 – This is the boring and safe investment on the board. By putting money into a CD you get a small but guaranteed return without putting the money in any risk.
- Capital One 360 High Interest Savings – $100 – Now you are probably thinking, “Paul, why not just invest this $100 in your CD and grab a little extra interest?” and that is a great question. The reason is liquidity. While I forfeit a little bit of interest by going with the savings account, I gain the ability to pull that money out at any time and apply it to another investment or use it for some other purpose.
You can come up with your own mix based off of your own risk tolerance, but I really like the make up of this combination of accounts. I would use something like this combo if I were investing $5000, and would consider this mix all the way up to a $10,000 investment.
Get Started Investing
With any type of investing for the long term, the most important thing is that you get started right now. Whether you are 15 or 50, letting the power of compound interest work for you is the most important financial decision you can make.