Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.
In this Article: Learn how to invest $1,000 today. From investing in the stock market to funding your Roth IRA, we cover the best ways to invest $1000.
When you hear the word investing, do you cringe? Does it worry you? Maybe you do not know how to start investing?
You are not alone! But if you keep letting fear get in the way, you’ll never get ahead. Let’s say you have $1,000. It will never grow unless you take that first step. I know it is scary, and sometimes intimidating, but today there are so many (safe) ways to grow your money.
Let’s see how much fun we can have investing $1,000 today.
Why is Investing Smart?
Why should you invest when you could just throw your $1,000 in a savings account? At least that interest is guaranteed, right?
Investing is smart for so many reasons. Not only can your earnings compound faster, but you have the opportunity to put your money in what you want. Savings just sit at a bank – your money’s doing nothing but helping a bank get richer.
When you invest, you give companies votes with your dollars. You help them do more, grow faster, and make better changes in the world. Of course, you’re in it for yourself too – your earnings grow a heck of a lot faster with investments than a savings account. Even a high-yield savings account or CD doesn’t touch the returns you could get investing in the market.
Of course, investing has its downsides. For one, you very well could lose money; however, if you diversify, then you offset that risk. Then all you’re left with is the fantastic returns investing may provide even if you’ve never invested in your life.
Let’s see how you can get started.
How to Invest $1,000 (Step-by-Step Guide)
Find out which option aligns with your financial goals and take the next steps. Our list of 13 ways to invest $1,000 are proven to work and used by millions of Americans.
1. Invest in Low-Fee Mutual Funds
Does the stock market scare you? Me too, don’t worry.
But here’s a great way to have your cake and eat it too. Invest in mutual funds. Look specifically for low-fee or even no-load mutual funds for even better results.
Mutual funds are for investors just like you that don’t have a lot to invest but have big goals. They are a combination of stocks, bonds, and other assets pooled together with the money from you and other investors.
There’s a mutual fund manager that either actively or passively manages the fund. Actively managed funds have higher fees, though, so stick to passively managed funds or index mutual funds.
2. Buy Exchange Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) are like mutual funds. You buy one fund and invest in multiple stocks or assets. ETFs are baskets of securities that trade on the market. They trade throughout the day and fluctuate in price, just like stocks.
ETFs often have fewer fees, and their individual costs are much lower than mutual funds, making them a more affordable option for people on a budget.
Why ETFs? They make it easy to diversify and with only $1,000 invested. If you tried to buy stocks with the entire $1,000, you wouldn’t buy nearly as many assets and would have very little diversification.
3. Fund Your Individual Retirement Account (IRA)
Open an IRA or contribute to your existing account. If it’s a traditional IRA, you write off the $1,000 contribution on your taxes. If not, you set yourself up for fewer taxes during retirement.
Why would I suggest the IRA? You can’t touch it, that’s why. All too often we’re tempted to pull money out of savings ‘just because.’ With an IRA, that’s not an option. Well, it is if you want to pay a 10% tax penalty plus applicable taxes on your investment.
In 2020, you can contribute up to $6,000 per year – if you haven’t contributed yet, let your $1,000 be the start. M1 Finance offers a no-fee IRA. It is a win-win all around.
4. Invest Your Spare Change with Acorns
What if you don’t want to part with $1,000 all at once? I get it. Then get your spare change invested. With Acorns, you can literally invest your spare change.
It works like this. Link your most-used credit or debit card to your Acorns account. Every time you use it, Acorns rounds up your purchase to the nearest $1 and invests the spare change. Like this:
You went to Target and spent $97.35 (we all know you can’t go to Target for one thing!) You used your debit card, and Acorns rounds up your purchase, sweeping the $0.65 into your Acorns account. It keeps doing this until you have $5 accumulated. Acorns then invest the spare change in your chosen portfolio.
5. Open a Robo-Advisor Investment Account
Are you intrigued about investing, but scared at the same time? I get it – we’ve all been there. Thankfully, there are Robo-advisors, aka digital advisors. Robo-advisors help you invest your money into safe assets.
Just be honest when you sign up and answer the survey of questions about your financial goals and risk tolerance. With this insight, the Robo-advisor will set up the perfect portfolio for you.
I tend to like M1 Finance – it’s excellent for beginners and expert investors too. They offer goal-based portfolios to help you reach your financial goals while minding your risk tolerance.
6. Invest $1,000 in Individual Stocks
If you have experience investing in the market, then you need to invest in individual stocks. Now is a great time with lower market prices. While you will not invest in big names like Apple or Amazon, you may get in on some great investments for a fair price.
Be careful, though. When you invest in stocks, it’s all or nothing. Diversify as much as you can. In other words, don’t put your entire $1,000 in one stock – that’s ALL your eggs in one basket and not a good idea. Instead, look for multiple lower-priced stocks. This allows you to get your feet wet in diversification and the stock market.
7. Open a High Yield Savings Account
If you’re entirely risk-averse, go for the high yield savings account. Yes, it’s boring, but sometimes that’s better. I prefer this for money I know I’ll need in the near future. I know that my money is liquid, earning interest, and safe. How does it get any better?
Many of the higher APY online savings banks require an initial $1,000 deposit, so go ahead and shop around for those banks and earn higher APYs – it will be worth the work.
Fortunately, we did the research for you. CIT Bank offers the best high yield saving account. From low fees to superior customer service, this bank is a great place to stash away your $1,000.
8. Park Your Money in a Certificate of Deposit (CD)
If you have a little time before you need your $1,000, invest it in a CD. You won’t make a lot, but you’ll get something for your time.
The longer you can put that money away, the more interest you will earn. But be careful, if you lock it up for too long and you need it, you’ll pay a penalty, defeating the purpose. We recommend the CIT Bank 1-Year CD. It is safe and has a high APY.
9. Real Estate Investing (REITs)
Have you always dreamt of investing in real estate, but never thought you’d have enough money? First, get out of that mindset – anything is possible! Next, look at REITs (real estate investment trusts).
You, along with thousands of other investors, pool your money together to fund new commercial real estate projects or buy existing debt. You earn interest based on your investment.
I love it because I can invest in real estate without tying up a large amount of capital. Plus, I get diversified investments because I’m in charge of where my money goes. As you can see, I’m not a fan of putting too much money into one investment. But at Fundrise, I can diversify my REITs, giving me a better chance of meeting my financial goals.
10. Invest $1,000 in Cryptocurrency
If cryptocurrency has always interested you AND you’ve already diversified your portfolio, give it a try. It wouldn’t be the first place I’d invest my money, but if I’d already exhausted all other investment options, I’d try it.
More brokers are getting into the crypto game, including Robinhood, which is a favorite robo-advisor of mine. It’s too new to know if you’ll walk away rich or not, but if you’ve stocked your emergency fund, invested in the stock market, started and funded your IRA, I say why not have a little fun?
11. Try Peer-to-Peer Lending
Peer-to-peer lending is really taking off today. As the name suggests, you help peers get the funds they need. The beauty of it is you control how much you invest in each person.
If you want to break your $1,000 up into 40 investments you can – $25 each. If you want to invest a little more at a time, you can do that too. The peer-to-peer sites do the legwork, vetting the borrowers and then sharing that information with you.
Using this information, you decide who and what you’ll invest in, receiving monthly payouts as the borrowers make their payments. At the end of the term, you get the return of your investment, and you start again.
What I love is that you can reinvest the interest payments each month into more loans, compounding your earnings.
12. Start a 529 College Savings Plan
It’s never too early or late, for that matter, to save for college. Whether you know your child is college-bound, or you just hope, start saving now. You’ll reap the tax savings now and if your child uses the funds for college – you withdraw the funds tax-free.
The downside is if they don’t go to college and you don’t have another child to pass it onto, you’ll pay taxes, but that’s’ not something you need to worry about for the time being.
If it doesn’t look like your child will head to college, then you can use the money you saved to pay off other educational expenses. This included K-12 tuition or even post-secondary trade schools.
13. Pay Off Your Debt
Don’t forget to invest in yourself! If you have high-interest debt, pay it off. Chances are you won’t replicate the same earnings with any investment, so essentially you lose money if you stay in debt.
Take that $1,000 and pay off your highest interest loan and get that interest off your back. This is the best thing you can too if you are carrying consumer debt.
Tips to Help You Invest $1,000
Here is a quick rundown on the best ways to invest $1,000:
- Diversify your investments as much as possible
- Always watch the fees and see how you can minimize them
- Use a long-term mindset, don’t focus on short wins, but rather long-term gains
- Get out of debt before you invest or at least alongside it
- Make sure you have at least $1,000 in an emergency fund, but 3 – 6 months of expenses is ideal
Wrapping Up: How to Invest $1,000
There you have it – your $1,000 can do a lot more than you probably thought possible. While throwing it in a savings account feels safe, it’s not going to get you far.
Step out of your comfort zone and try something new. There are so many options, many of which are safe, and if you diversify, you offset the risks even more.
Pick a few of your favorite methods and give it a whirl! Who knows, you may find entirely new ways to invest that grow your money faster than you thought possible.