Some Ways to Invest $1000
Your first real foray into the world of investing will probably feel both exciting and frightening. It’s hard to make sure you’re doing things right, especially if you’re new to this whole thing, but don’t worry! There are plenty of opportunities out there for your first investment, and it doesn’t have to be an extravagant one—in fact, it should probably be on the more modest side.
Here are some ideas on how to invest $1000 that will help you get started with investing on your own without costing you too much money or stress.
Diversify your portfolio
Diversification is one of those old financial terms that gets tossed around a lot but not everyone understands it. The basic idea behind diversification is simple: You invest in a variety of different assets so that if one asset does poorly, others will perform well and you’ll be covered.
In other words, you want some exposure to stocks, bonds, real estate, and cash—and while one might perform poorly in any given year, over time they should all do reasonably well.
If you don’t have a diversified portfolio, or if your portfolio isn’t large enough for anyone segment to make up more than about 20 percent of your total investments (typically stocks), you could be headed for trouble.
Start investing regularly
To start, look at your budget and see where you can dedicate a recurring amount of money each month. You can invest in stocks, bonds, mutual funds, or peer-to-peer lending.
If you don’t have any extra cash lying around, consider putting something on auto-pilot that you get charged for anyway—like Netflix or Hulu.
If you typically buy takeout at work every day for lunch, start bringing your own food instead (or leave half of it at home). The point is to automate it so it doesn’t feel like an afterthought.
The more disciplined you are about setting aside an amount of money each month—even if it’s only a few hundred dollars—the better off your future self will be.
Utilize index funds
If you’re starting with a thousand dollars, index funds are a great place to begin. Let’s say you buy shares in an S&P 500 index fund, which basically gives you access to 500 of America’s largest companies.
Not only do you have access to some of America’s largest companies, but research suggests that investing in a diverse group of stocks helps mitigate risk while helping increase returns—the classic 1-2 punch.
The easiest way for a new investor to get their foot in these waters is through an online broker like Ally Invest or TD Ameritrade.
Set up recurring investments
If you’re going to be investing a lot of money, you may want to consider setting up a recurring investment plan—often called dollar-cost averaging.
As its name suggests, dollar-cost averaging is an investing strategy that helps manage risk by taking advantage of how volatile some investments can be.
It allows you to invest a fixed amount each month. You won’t know what returns your investment will earn from one month to the next, but over time it tends to even out and reduce your overall risk.
Because dollar-cost averaging automatically take place without any action on your part, it also makes financial sense for investors who have trouble sticking with their investment plans once they get started.
Flip Real Estate Contracts
Instead of buying and flipping a single home, consider using your capital to flip entire properties. When you do so, you essentially get two revenue streams: The profits from buying and selling homes, and an ongoing monthly income that pays for itself because you get paid just for owning a piece of real estate.
This approach is called house flipping, but it’s more accurately described as investing in turnkey rental properties—also known as single-asset real estate investment trusts (REITs). It can be an incredibly effective way to grow wealth if done right.
That said, not all investors are cut out for house flipping. There are challenges in addition to a laundry list of things that can go wrong in a short period of time.
Investing in High Yield Savings Account
Perhaps one of your main goals when starting an investment account is to avoid losing money. But when you’re just getting started, it can be difficult—if not impossible—to pick stocks that are likely to beat benchmarks like Standard & Poor’s 500 index.
Instead, put some of your savings in a high-yield savings account and leave it there for at least six months. Even in today’s low-interest-rate environment, many banks will still pay 1% or more on accounts of $1,000 or more.
And while returns on these products aren’t stellar, you won’t lose any money by leaving them there.
Investing in Forex and Trade Options
While you can invest in stocks, real estate, and other traditional methods, you can also consider investing in forex and trade options.
These alternative investment tools can provide great flexibility as well as investment diversity. They’re riskier than many other investment options but they also offer opportunities for even greater rewards.
You should educate yourself on these tools before committing any money; if you do decide to commit money, set aside a small amount first and make trades with it until you feel comfortable enough with these markets to trade bigger amounts of money.
Investing in Forex and Trade Options: While you can invest in stocks, real estate, and other traditional methods, you can also consider investing in forex and trade options. These alternative investment tools can provide great flexibility as well as investment diversity.
Using a Robo-advisor like Betterment or Wealthfront is an easy way to get started investing. These services use algorithms (ie, robots) to manage your investments for you based on your personal risk tolerance and other financial factors.
For example, if you’re willing to take on more risk, you can get higher returns because your portfolio is likely comprised of stocks that are more volatile (or risky). You can learn more about Robo-Advisors here.
One key advantage that robots have over traditional investment advisors is fees; these services typically have much lower management fees than human investment advisors do.
Invest in an IRA account
A traditional IRA account allows you to put away up to $6,000 per year (or up to $7,000 if you’re 50 or older). Contributions are tax-deductible and grow tax-deferred—meaning that you don’t pay taxes on interest earned or withdrawals.
You can also start an individual 401(k) plan with your employer. This is a great way for businesses with fewer than 50 employees—and their employees—to save for retirement.
When your money grows inside a 401(k), it continues to build on top of itself every year, because contributions are taken from your paycheck before taxes are withheld. That means you get an immediate tax break.
There are lots of ways to invest $1,000. Your choice will largely depend on your tolerance for risk and how much time you’re willing to put into managing your portfolio. If you’re new to investing, it may be best to start with some tried-and-true options before you move onto something more speculative.
Don’t forget about inflation—you want your money to grow, but you don’t want it to grow so quickly that it doesn’t keep up with rising prices. When possible, diversify across different asset classes (think bonds, stocks, and cash) and keep fees low.