Best Ways to Invest $1,000
If investing was easy, everyone would be rich. Even if you already have some active investment accounts, it can still be tricky deciding where to allocate your next $1,000 investment. And that’s exactly what I want to help you figure out.
In this post, I’m going to talk about the 11 best ways to invest $1,000. I don’t make any 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 that can help new investors like you grow the money that 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 begin 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:
- Fund Your IRA
- Invest In ETFs, Mutual Funds or Index Funds
- Open an HYSA
- Open a Robo-Advisor Account
- Purchase Individual Stocks
- Buy Cryptocurrencies
- Invest In Real Estate
- Pay off Liabilities
- Peer-to-Peer Lending
- Start a 529 College Savings Plan
- Diversify Your Approach
1. Fund Your Individual Retirement Account (IRA)
It’s hard to beat the tax savings and compounded growth that you get from your IRA investments. In fact, IRAs are the ultimate passive investment strategy.
Whether or not you have an IRA, I recommend throwing the $1,000 into it—no questions asked. 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.
Simply put, the more money you deposit to your IRA (up to $6,000 in 2020, or $7,000 if you’re 50 or older) the less you’ll pay in taxes. The only downside is that once your money goes into the IRA account, 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 look into opening a Roth IRA, which is funded with post-tax dollars.
2. Invest in Exchange Traded Funds (ETFs), Mutual Funds, or Index Funds
ETFs, mutual funds, and index funds are widely considered to be the safest form of long-term stock market investing. That’s because when you invest in these assets, your money is diversified across a range of stocks and bonds, depending on which fund you select.
So, you generally avoid the risk that individual stocks carry because your money isn’t directly tied to the performance of one single company.
Another main benefit is that they typically don’t carry commissions and have very low expense ratios, which means more of your money stays in your account. However, ETFs tend to carry lower fees than mutual funds. Keep in mind that these types of investments are not intended for short-term gains.
ETFs, mutual funds, and index funds are available through most major investment institutions such as:
3. Open a High Yield Savings Account (HYSA)
HYSAs are another one of my favorite investment vehicles, and I’m a big fan of using them to store and build your cash savings.
Nowadays, a handful of companies offer interest rates between 1% and 1.7%. That means you’ll earn $10 to $17 for each $1,000 invested. (Interest rates fluctuate depending on market conditions.)
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 any money stashed there.
Whether you’re parking your emergency fund there or saving up for a down payment on a house, HYSAs is a great way to go.
4. Open a Robo-Advisor Account
Robo-advisors are financial service tools that use advanced technology to automatically allocate and rebalance your investments. These services are quickly becoming a preferred investment vehicle among millennials due to the hands-off approach and low-fee structure.
Typically, robo-advisors employ fewer people and have less overhead than traditional financial institutions. These cost savings are passed down to customers in the form of lower management fees, which usually range from 0.25% to 0.40% APY on assets under management.
When you open an account, you typically tell the service about your investment goals, preferences, and risk tolerance. Their system then automatically allocates 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 and asset allocation.
5. Purchase Individual Stocks
Buying individual stocks is another solid option for investing $1,000. In today’s unstable market conditions, you can find some amazing deals on stocks.
Oil, gas, and travel stocks are all at all-time lows, and you can bet that smart investors are hedging for those prices to climb in the future, which they inevitably will.
I will say that if you are just starting out investing with only $1,000, it is probably best to hold off on investing in individual stocks. That’s because individual stocks are far riskier than investing in ETFs since they’re susceptible to drastic market shifts. When you put all your eggs in one basket, you better hope you don’t drop it.
If you decide that investing in individual stocks is the way to go, I recommend looking into zero-commission trading platforms like:
6. 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). Some experts predict cryptocurrencies to 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. Whichever one you chose, I suggest ensuring that all of your other financial bases are already covered—like having an emergency savings fund, IRA, and HYSA—before trying your hand in the crypto game. There are a ton of cryptocurrencies out there, and a lot of them are fairly shady in my perspective. Caveat emptor.
7. Invest in Real Estate (REITs)
In most cases, $1,000 won’t get you very far in the real estate market. But if you’re interested in real estate investing and only have $1,000 to invest, a REIT may be just what the doctor ordered.
REIT stands for real estate investment trust. REITs are businesses that own and manage income-generating real estate. Over the past few years, some really interesting online REITs have popped up that offer crowdfunded real estate investing.
Companies like Fundrise and DiversyFund allow you to purchase shares of apartment complexes, single-family rental homes, and mixed-use commercial properties. As a reward for your investment, you can earn a percentage of the profits that these properties generate. At the same time, as with any investment, you can also lose money if the properties aren’t profitable.
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.
8. Pay Off Liabilities
If you have credit card debt or a high-interest loan, you should not think twice about investing your $1,000 toward paying that off. Think about it as investing in yourself and your own future.
I’ve heard too many stories about people who get stuck with horrible credit card debt. Each month, they are only able to pay the minimum amount on their credit card bill—which means they get hit with an insane interest fee that washes out their minimum payment every 30 or so days. It’s an awful cycle—and one that can crush your dreams of financial independence.
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 aren’t in the best position to be making that purchase in the first place.
9. Try Peer-to-Peer (P2P) Lending
P2P lending, or peer lending, involves lending money to someone—through an online lending portal like LendingClub—and then earning interest on the loan. As this borrower pays back the loan, you can earn a profit from the interest rate that they pay (in the same way banks earn from mortgage and auto loans).
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.
10. Start a 529 College Savings Plan
529 savings plans allow you to save money, tax-free, that can later be used toward your child’s (or a family member’s) college education. Considering the insane costs of tuition, if you eventually plan to send your kids to college, starting a 529 savings plan makes perfect financial sense.
The only downside is that you can’t use the funds for anything other than college tuition, or else you’ll get hit with a penalty, and have to pay taxes on it.
11. Diversify Your Approach
Your next $1,000 doesn’t have to be in one place, either. If you’re a fan of several of the investment vehicles I mentioned above, there’s no reason why you can’t try out a few of them. 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 HYSA 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.
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 goals, your immediate financial needs, and your cash flow. Remember that 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 that you can be proud of.
Here’s to securing your financial future, one step at a time.