Investing

How To Invest $1,000

So, you just received a nice bonus check from your employer or a tax refund from the government. Nice! It’s not every day that most people have an extra $1,000 at their disposal to do with as they please.  

But with so many different ways to spend that money in a flash, how do you know what the best use of that money should be? What smart choices can you make with this windfall that would give you the best return and improve your well-being? Should you invest in mutual funds? Maybe you should invest for retirement? Or put the money in a savings account to yield interest. There are so many options!

In this post, we’ll explore ten great ways to invest $1,000 and get the maximum benefit you’re looking for.

how to invest 1000

1-Pay Down Your High-Interest Debt

When you have extra money, it is good to develop a financial plan. One of the first things you can do is put it towards your high-interest debt. These would be things like your credit cards, personal loans, and even student loans.

Even though a thousand dollars won’t likely erase your debt, it will bring you closer to becoming debt-free.

Why Is This an Investment? 

You save yourself from future interest payments when you pay off your debt ahead of schedule. Think of it as a reverse investment. For example, if you’ve got a credit card that carries a 30 percent APR, then paying down your debt would be like the same thing as making an investment that returns 30 percent (since you won’t owe it later on).

Even if you don’t have any high-interest debt, you may want to consider putting this $1,000 towards one of your smaller interest debts, such as your mortgage or auto loan. Again, even at a lower rate, reducing the loan balance amount will decrease the total interest you owe over the life of the loan. 

2-Build Up Your Emergency Fund

Build Up Your Emergency Fund

Most financial experts agree: You need to have an emergency fund!

If you haven’t already, then you need to start one. Your emergency fund is the cash you can use to cover unexpected situations like car repairs, medical bills, and even unemployment.

While most experts agree that you should be saving 3 to 6 months’ worth of cash, don’t get discouraged. Financial guru Dave Ramsey recommends that $1,000 is the perfect amount to get a “starter emergency fund” going.  

Of course, if you’ve already got an emergency fund, then this thousand bucks would make a nice addition to it.  

Why Is This an Investment? 

Even though the money in your emergency fund is generally held in cash and barely earning any interest, don’t think of it as money that’s sitting around and doing nothing. What it’s there for is to protect you from having to take on high-interest debt or personal loans if you find yourself in an extreme situation. It’s that kind of “out” that makes having an emergency fund every bit worth building up. 

3-Contribute To Your Retirement Plans

Contribute to Your Retirement Plans

One of the great ways to invest $1,000 is to put it into one of your retirement funds like your 401(k) or IRA.

An IRA is a convenient choice because it doesn’t involve your employer. You can go to any reputable financial services provider or bank and open one at your leisure. It’s about as painless as the effort it takes to set up a new checking account; 15 to 20 minutes tops.

If you’re already contributing to a 401(k) plan through your employer, then you could increase your contribution levels so that they work out to an extra thousand dollars.  

Increasing your 401(k) contributions can be especially beneficial if your employer offers any matching contributions and you haven’t already reached their upper limit. That would mean more money for you!

Why Is This An Investment? 

The money you save into your retirement plans gets invested into assets that will grow and compound for years to come. For example, if you were to invest in a simple stock market index fund, then over the long haul, you could expect an average annualized return of 10 percent

On top of this, retirement plans are tax-advantaged by design. This means that by simply contributing to them, you get to delay paying taxes on these investments for years into the future until you’re finally ready to retire and start making withdrawals. Over time, the money you save on deferring these taxes can add up significantly!

4-Start Investing in the Stock Market

Investing is stock market

Your retirement funds aren’t the only place where you can invest your money. A thousand dollars is just about the right amount of money to get started with buying stocks.

Scared? That’s understandable. Picking out stocks without an investment advisor can be tricky, and the securities and exchange commission rules don’t make it easy. That’s why these days, you can let an app do all the work for you!

So-called “robo-advisors” like M1 Finance, Betterment, and Acorns are helping thousands of people to build custom-made investment portfolios easily with just a few clicks. Just tell these apps what your risk/reward preferences are, and then let them do all the heavy lifting for you.

If you already have a brokerage account, you could make similar investments yourself by investing in index funds or purchasing ETFs.

Why Is This An Investment? 

Just like your retirement funds, the money you invest in stocks has the potential to grow and compound for years to come. You can make money by investing in stocks. Depending on how aggressive you go, you might be surprised by how much they grow in some years.

5-Build a Diversified Portfolio With Fractional Shares Investing

You can always invest your hard-earned dollars in individual stocks. But fractional shares let you buy a fraction of the stock you want and have lower risks. Investment options like this are quite easy, almost like investing in traditional stocks or exchange-traded funds (ETF).

Find a brokerage firm that allows fractional shares investing to build a diversified portfolio. From there, you can research your options and start investing at your pace.

Why Is This an Investment?

Unlike other investments, this investing strategy allows for investment diversification to the max. You can invest in big-name stocks that you might be unable to afford. So, with your $1,000, you can invest in large companies with shares above that rate, and it carries medium risk.

6-Open High Yield Savings Accounts

Most people who are not ready to start their investment journey put their money in a traditional savings account. Traditional savings accounts are a good option if you do not wish to invest after-tax dollars and have no investment advisor. After all, you save money!

But there’s something better. It’s a high-yield savings account. According to Investopedia, a high-yield savings account is a type of savings account that typically pays 20 to 25 times the national average of a standard savings account.

You can open an account with your current bank, but you’ll get low-interest rates. If you want higher interest rates, consider a reputable online bank. However, keep in mind that savings may have high interests, but they do not pay as much as the stock market.

Why Is This an Investment

This savings account is good if you’re looking for short-term investments. It’s also a good option if you’re interested in making money without going on an investing journey. In addition, it is safer than investing in the stock market, which has a higher risk.

7-Build a Micro Real Estate Portfolio

If you haven’t started investing in real estate, now is the time to do so. There are dozens of ways to build your personal financial funds through real estate. One of such ways is real estate investment trusts (REIT).

Real estate investment trusts are companies that own or finance income-producing real estate across various property sectors. Private REITs usually have a minimum initial investment of $1,000. However, some companies offer smaller amounts.

Why Is This an Investment?

When you invest $1,000 into REITs, it is akin to buying stock and waiting for the share price to appreciate. When it does, you receive a dividend and can sell them at a value when its market value increases. It is a great way to build your personal finance.

8-Go Into Passive Investment

Passive investing is an investing strategy that tracks a market-weighted index or portfolio. It is quite common on the equity market, where index funds track a stock market index. You can consider low-cost index funds or vanguard index funds.

The best passive investing options with low fees are real estate, peer-to-peer lending (it differs from a personal loan), dividend stocks, and index funds.

Why Is This an Investment

Passive investments have a lower expense ratio than most active funds. This is because it requires very little research and upkeep. An expense ratio is vital because it lets investors know how much they are paying in costs by investing in a specific fund and how much their returns will reduce. The lower the expense ratio, the better because you receive higher returns on your invested capital.

9-Invest in After-Tax Dollars and Mutual Funds

After-tax dollars are monies paid into a retirement or investment account after income taxes on those earnings have already been deducted. In simpler terms, you make money, pay income tax, and then deposit it into an account where it can earn interest.

Examples of accounts like these are:

  • Certificate of Deposits (CDs): It is a type of federally insured savings account in which you invest funds for a specified period of time in exchange for predetermined monthly interest. This type of investment is FDIC insured. All you need do is purchase a certificate of deposit, leave a specific sum of money, and leave it there for a specified period, usually one year. In exchange, the bank guarantee payment of an agreed interest rate. At the end of the agreed term, the bank pays the principal. For example, if you invest $1,000 in a one-year 5% certificate, you’ll receive $50 in interest over the course of one year, plus the $1,000 you initially invested.
  • Savings Account: Even the best yeild savings accounts offer relatively low returns. So, while its is good example of after-tax dollars ccount, it is not the best place to invest $1,000. Instead consider a low-risk investent portfolio, epecially if you just started investing.
  • Money-Market Accounts: This is an account that pays interest based on current interest rates in the money market. Note that its is not the same with a money-market mutual fund. The latter focuses on highly liquid, near-term instruments. Examples are treasury securities, commercial paper, certificate of deposit, trade credit, bills of exchange, promissory notes, call money, etc.

Other accounts you can consider are regular taxable brokerage accounts and Roth IRA accounts.

Mutual funds are safer than buying individual stocks, so it’s the best option when considering how to invest $1,000. Also, you can hold several stocks from different companies within one investment, thereby giving you more diversification.

Why Is This an Investment

The money you invest in after-tax dollars and mutual funds comes with low trading costs. In addition, you have simplified portfolio management and can easily access and track your money.

10-Improve Yourself

improve yourself

Perhaps one of the best ways to invest $1,000 would be to put it towards something you’ve probably been procrastinating on for a while now: Improving yourself!

A thousand bucks could get you started with:

  • Exercising.  Join a gym and jump into getting in shape.  Or better yet, hire a personal trainer who can work with you one-on-one to give you a tailored strength-training program.
  • Eating better.  Is your waistline not where you want it to be?  You could join a well-known diet program (such as Weight Watchers) and get specific advice on how you can start developing better eating habits.  
  • Obtaining a certification.  Is there a training program or certificate that would help you boost your career?  This money could be the thing you need to finally go out and get it. 
  • Develop new skills.  Speaking of your career, perhaps you wish you were a better presenter, more organized, had more leadership potential, etc.  You could find a class or online program that would help you to develop these talents.
  • Learning a new hobby.  Perhaps you’d like to do something for yourself like learn a new language or play an instrument.  Again, you could easily purchase lessons either online or in-person.
  • Starting a new business. Another career move you could make with $1,000 is starting your own business. Maybe you want to start your own photography business? Or maybe you’d like to get into the t-shirt business? $1,000 may not seem like too much, but it can definitely help you get your business up off the ground.

Why Is This An Investment? 

Though you may not make any money directly by joining a gym or taking a few classes, it can have a profound impact on your overall mental health and well-being. Sometimes doing things that we’re passionate about can give us that sense of “feeling good” that we’re looking for.

Don’t write off that financial return on investment just yet. For example, studies have shown that people who exercise and eat better become more confident. As a result, they end up earning more money at their jobs.

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DJ Whiteside

DJ Whiteside is a financial enthusiast who believes in helping other people to achieve financial independence. He’s constantly looking for practical ways to optimize savings, reduce spending, and create a lifetime of passive income. DJ holds an MBA from the University of Michigan, which allows him to take an analytical approach to financial topics. He has been a financial writer since 2011 and has self-published 5 personal finance eBooks relating to saving, retirement, and financial independence.

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