Best Ways to Invest $1,000

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If investing were so easy, everyone would be rich.

Even if you already have some active investment accounts, deciding where to invest your next $1,000 won’t always be easy. So that’s exactly what I’d like to help you figure out.

In this post, I’m going to talk about 11 smart ways to invest $1,000. I don’t make investment decisions lightly, and neither should you.

Over the last several years, I have done a ton of research and made enough investments of my own to come up with a blueprint of sorts. This blueprint can help new investors like you grow the money you’ve worked so hard to earn.

With that in mind, let’s take a look at 11 ways you can invest $1,000 as you continue your journey to financial freedom.

11 Best Ways to Invest $1,000

Here are the 11 best ways you can invest 1,000 dollars today:

  1. Fund Your IRA
  2. Invest In ETFs, Mutual Funds or Index Funds
  3. Open an HYSA
  4. Open a Robo-Advisor Account
  5. Purchase Individual Stocks
  6. Buy Cryptocurrencies
  7. Invest In Real Estate
  8. Pay off Liabilities
  9. Peer-to-Peer Lending
  10. Start a 529 College Savings Plan
  11. Diversify Your Approach

Fund Your Individual Retirement Account (IRA)

It’s hard to beat the tax savings and compounded growth you get from your Individual Retirement Account (IRA). In fact, IRAs are the ultimate passive investment strategy.

If you have $1,000 to invest, I recommend throwing the cash right into your IRA or using it to open an IRA if you don’t already have one.

Not only are you preparing for your retirement, but you’re also benefiting each tax filing season because your IRA investments reduce your taxable income. (You’ll be taxed on the money when you withdraw it during retirement.)

Simply put, the more money you deposit into your IRA (up to $6,000 in 2020, or $7,000 if you’re 50 or older) the less you’ll pay in income taxes. The downside: Once your money goes into the IRA, you can’t take it out until you retire. Otherwise, you’ll have to pay a penalty.

If you don’t have an IRA, you should absolutely, positively open one up. You can also open a Roth IRA which defers your tax break until after you retire.

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Invest in Exchange Traded Funds (ETFs), Mutual Funds, or Index Funds

Brokers consider ETFs, mutual funds, and index funds the safest form of long-term stock market investing. That’s because when you invest in these assets, your money is instantly diversified across a range of stocks, bonds, or both.

So, you generally avoid the risk that individual stocks carry because your money isn’t directly tied to the performance of one single company.

And, these funds typically don’t charge commissions. They have very low expense ratios, which means more of your money stays in your account to grow. ETFs tend to carry lower fees than mutual funds. Keep in mind these types of investments are not intended for short-term investments. So put your $1,000 into these funds and let them stay.

ETFs, mutual funds, and index funds are available through most major investment institutions such as; Vanguard, Fidelity, Charles Schwab, E*TRADE or TD Ameritrade.

Most Robo-advisors — which we’ll discuss below — invest your money in ETFs or index funds.

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Open a High Yield Savings Account (HYSA)

High yield savings accounts are another one of my favorite investment vehicles. I’m a big fan of using these bank accounts to store and build your cash savings.

It’s not unusual for a handful of banks to offer interest rates between 1% and 2%. That means you’d earn $10 to $20 for each $1,000 invested. However, Interest rates fluctuate depending on market conditions; as we’re currently seeing during this mini-recession caused by the COVID-19 coronavirus.

While this interest rate is lower than what you can earn in the stock market, the upside is that you can access your funds whenever you need to, and there aren’t any fees or withdrawal penalties for taking out money.

Plus, it’s a savings account, so you can’t lose your thousand dollars stashed there. The FDIC insures each depositor up to $250,000 per bank.

Whether you’re parking your emergency fund or saving up for a down payment on a house or car, a HYSA is a great way to go.

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Open a Robo-Advisor Account

Robo-advisors use advanced technology to allocate and rebalance your investments automatically — eliminating the need to pay someone to manage your accounts.

Robo-advisors have become a preferred investment vehicle among millennials because of this hands-off approach and low-fee structure.

Typically, robo-advisors employ fewer people and pay less overhead than traditional financial institutions. They pass along these savings to investors in the form of lower management fees. Fees usually range from 0.25% to 0.40% of your account balance per year.

With many robos, you can invest any amount of money — you could even start investing with only $5.

When you open an account, you’ll tell the robo about your investment goals, preferences, and risk tolerance. The system automatically allocates and maintains an investment portfolio based on your answers.

You don’t even need to speak with a financial planner because the software automatically handles things like rebalancing, asset allocation, and tax-loss harvesting.

The main players in this space are still Betterment and Wealthfront. Betterment has no minimum balance requirements to open an account, whereas you’ll need $500 to get started with Wealthfront.

Newer robos are growing in popularity by finding their own niches. M1 Finance charges no management fees and Acorns sweeps your spare change into ETFs, for example. Ellevest is a robo built exclusively for women.

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Buy Individual Stocks

Buying individual stocks is another solid option for investing your next $1,000. In today’s market conditions, you can find some amazing deals on stocks even if you don’t tap the next Apple, Amazon, or Google.

But if this is your first $1,000 or you are just starting out investing, hold off on buying individual stocks and invest in ETFs or mutual funds instead. Unless you have Warren Buffett as your personal finance manager, choosing the right individual stocks can create too much pressure and take the fun out of investing.

That’s because individual stocks are susceptible to drastic market shifts, meaning you could lose your investment right away. Exchange-traded funds and index funds provide an instantly diversified portfolio; individual stocks can’t do this unless you employ an investing strategy that buys just the right stocks.

But if you already have an emergency fund and a nice foundation of investment funds, you may be ready to put your next thousand dollars directly into individual stocks. Many online brokers let you buy fractional shares which helps diversify your investment.

You’ve chosen the right time to buy individual stocks because the market is now full of zero-commission brokerage accounts like; Robinhood, Webull, E*Trade, Ally Invest, Charles Schwab, Fidelity or TD Ameritrade.

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Buy Cryptocurrencies

Cryptocurrencies are not the first place that I’d recommend investing your $1,000. However, if you already have a diversified investment portfolio, it may make sense for you to branch out into this exciting new investment arena.

For $1,000, you can get a sizable chunk of bitcoin (BTC), several Ethereum (ETH) coins, or a bunch of Litecoins (LTC).

A few years ago some personal finance experts thought crypto investing was a way to make free money. Some financial advisors still predict cryptocurrencies will grow in value over time, but it’s impossible to know for sure. You may have read my posts on cryptocurrencies in the past and how at one point I was a bitcoin millionaire myself.

A few of the more popular crypto trading platforms that I have come across lately are Coinbase, Robinhood Crypto, Toro, and Gemini. More and more brokerage accounts offer this kind of trading, too.

Whichever one you chose, I suggest making sure all of your other financial bases are already covered and that you have a good handle on your financial goals.

Make sure you have an emergency savings fund, an IRA, and a high yield savings account before getting into the crypto game. There are a ton of cryptocurrencies out there, and a lot of them are fairly shady in my perspective. Caveat emptor.

Invest in Real Estate (REITs)

In most cases, $1,000 won’t get you very deep into real estate investing. But if you’re interested in real estate investing and only have $1,000 to invest, a real estate investment trust (REIT) may be just what the doctor ordered.

REITs are funds that own and manage income-generating real estate developments and properties. Over the past few years, some really interesting online REITs have popped up that raise money through crowdfunding.

Companies like Fundrise and DiversyFund allow you to buy shares of apartment complexes, single-family rental homes, and mixed-use commercial properties. You don’t have to know how to manage projects or properties to invest. You just provide the capital.

As a shareholder you can make money by earning a percentage of the profits these properties earn. At the same time, as with any investment, you can also lose money if the properties don’t make money.

The minimum balance to open an account with Fundrise and DiversyFund is $500. There are a couple of other players out there, but you need way more than $1,000 to open an account, so I am not going to cover them here.

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Pay Off Liabilities

If you have credit card debt or a high-interest personal loan, why not put your $1,000 toward that debt? It’s not an exciting way to spend a grand, but getting out of debt frees you up to prosper in the future.

I’ve heard too many stories about people who get stuck with horrible credit card debt. Each month, they make the minimum payment on their credit card bill — which means they get hit with an insane interest fee that washes out their minimum payment every 30 days or so. It’s an awful cycle — and it can crush your dreams of financial freedom.

Don’t let this happen to you. Be sure to pay off your credit card balance in full every month. In my opinion, if you can’t afford to buy something outright (like a TV, a vacation, or a new appliance), you probably shouldn’t make that purchase in the first place. Look for a used appliance or TV instead; find a low-cost getaway for your vacation.

Here’s why it’s so important to get out of debt before you start investing: Even if you turned your $1,000 into a smart investment that earns, say, 7%, those gains will be washed out by the 26% you’re being charged on the $1,000 you owe the credit card company.

You have to climb out of the hole before you can start laying the foundation of your financial freedom.

And if you need some ways to earn extra money to get out of debt or invest, check out:

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Try Peer-to-Peer (P2P) Lending

With P2P lending, or peer lending, you become the bank for someone else’s dreams. Borrowers apply for a loan on a lending portal like LendingClub and you can decide whether or not to help fund the loan.

If you do, you’ll earn interest as the lender pays back the loan. Borrowers often turn to P2P and other crowdfunding lenders to help finance their small business ideas. You can choose which borrowers to fund and which ones to pass on.

As this borrower pays back the loan, you’ll earn a profit from the interest rate that they pay (in the same way banks earn from mortgage and auto loans). The borrower could also default on the loan which would cost you money.

By most accounts, LendingClub is the leading player in this space, and it just so happens that they have a $1,000 minimum investment to open an account.

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Start a 529 College Savings Plan

The 529 College Savings Plan allows you to save money, tax-free, that you can later use to pay for your child’s (or a family member’s) college education.

Considering the insane cost of tuition which rises every year, starting a 529 savings plan makes perfect financial sense. Now you can also use up to $10,000 a year of your 529 money for your child’s private elementary, middle, or high school tuition.

The downside is that you can’t use the funds for anything other than tuition. If you do you could get hit with a penalty, and you’d have to pay taxes on the money you spent.

Diversify Your Approach

You don’t have to invest all thousand of your dollars in one place. If you like several of the investment vehicles I mentioned above, there’s no reason you couldn’t try out a few of them at once.

In fact, for many of you, this might be the wisest option.

Here are a few ways you can split up your money:

  • Throw $500 in a high yield savings account and $500 in your IRA.
  • Put $500 in an ETF and buy $500 worth of cryptocurrencies.
  • Knock $500 off from your student loans and open a robo-advisor account with the other $500.
  • Purchase $500 worth of an individual stock and invest the other $500 in your child’s 529 account.

You can also come up with your own recipe.

How Should You Invest $1,000?

As you can see, there are a number of ways that you can break out your investments, and most leading financial experts recommend diversifying your asset allocation.

The right path depends on your financial goals, your immediate financial needs, and your cash flow.

Your time horizon should also shape your investment strategy. If you’re in your 20s or early 30s, you could afford to be more aggressive with your next grand because you’d have more time to recover from a stock market loss. Older investors, who have a shorter time horizon, usually have a lower risk tolerance and crave more stable funds.

Remember you don’t have to wait. You can start building your nest egg even with just a little money at a time. It’s all about making smart financial decisions each day. Over time, these actions will add up to an investment portfolio you can be proud of.

Here’s to securing your financial future, one step at a time.

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