A $1,000 investment is the first major step into the investing world for many people.
The questions I normally get are, How do I invest?, What are some good investments?, or Is this the best use of my money?
Right now, $1,000 probably doesn’t seem like a lot to invest, but you are beginning the practice of making sound decisions now and that is going to pay off big time as you make more and more financial decisions in the future.
Sneak Peak: Our Top 5 Best Ways To Invest $1,000
Whatever decision you make, you should be proud of yourself for taking the time to be thoughtful with your money.
The problem with investing $1,000 is that it is enough to be a serious investment, but not enough that you want to spend some of that money paying a financial planner to help you.
Where do you start and what are the best short term investments or long term?
1. Go boring but safe
If you want to make some interest with your $1k, but cannot currently afford to lose any of it or you need to have quick access to the money, then some sort of savings account is going to be your best option.
There are tons of online high-yield savings accounts that will provide you with better interest rates than what you can get from your local bricks and mortar bank.
These accounts will not get you a ton of interest, but they are FDIC insured so you now you have no chance of losing the money and you can withdraw at any time.
2. Real Estate Investing (REITs)
Have you ever thought about investing in real estate? When you think of real estate investing, you probably think of renting a house or office space. That’s the most common type of real estate investing, but not everyone wants to have the day-to-day duties of being a landlord or managing the spaces.
If this is you, then you should consider putting your $1,000 in a REIT. These are trusts which allows a lot of investors to put their money into a single real estate investment.
There are dozens of ways you can get started in a REIT, but the easiest is through Fundrise. With just $500 (only half the money you have to invest), you can make an initial investment. You can use their starter portfolio which will put your money into several different REITs and give you instant diversification.
The fees are minimal with Fundrise. The average investor only pays about 0.40 in fees of every year. Compared to the other options out there, this is much lower.
If you’re looking for a quick and easy way to invest in real estate without having to manage the buildings or having your investments diminished from fees, Fundrise should be your go-to place.
3. Peer to peer lending
Loan Types
Personal, Business, Medical, Auto and more
Average Returns
5.06% – 8.74%
Initial Deposit Minimum
$25
Peer to peer lending is crowdfunding for loans. Each person who contributes to the loan gets paid back with interest. Basically, you get to participate in a loan relationship as the bank, along with a bunch of other people, and take advantage of earning the interest.
Easy to use services like Lending Club have allowed P2P Lending to become a major player in the personal loans market place. The ability to diversify into so many loans makes Lending Club a very appealing place to invest your money. Read my full Lending Club Review.
Even though I have several thousand dollars invested in the platform now, and have had great success, I rarely invest more than $100 in a single loan.
I have also seen several people take a piece of their IRA and diversify into P2P lending by investing as much as $100k.
4. Let robots handle your investments
The age of robots is upon us and the investing world is not immune. Robo-advisors take some of the best investing strategies and use artificial intelligence to implement them.
What this means for you is that you can get many of the benefits of a financial planner for a much lower cost or no cost at all. If you are looking for a way to set up your investments and forget them while benefitting from an actively managed account then a robo-advisor is a great way to go. The two biggest players in the robo-advisor market are Betterment and M1 Finance
Betterment
I really like Betterment and the interface is very slick and easy to use, but they have one big drawback the prevents me from mentioning them first and that is fees. Betterment charges a 0.25% fee for all digital accounts no matter the minimum balance.
I would even recommend this service for larger investments (see my post on how to invest $500,000).
What makes me like Betterment so much is their perspectives on the market. I did an interview with the Betterment CEO, Jon Stein. His belief, and this is reflected in the Betterment software, is that the markets are representative of the global economy.
5. Diversify your money with ETFs
Exchange traded funds have made it so much easier to diversify your stock investments. They work very similar to a mutual fund, in that, you make a small purchase of a whole bunch of different stocks. Where the ETFs differ is that they are traded in shares just like an individual stock would be. So you can by much smaller pieces of the fund and get a great diversification.
I know you might be thinking, “It’s only $1k. Why don’t I just buy some shares in my favorite company?”
One of the important parts of investing is to consistently practice good habits. By practicing this good habit with your 1000 dollar investment, you will be practicing for when you can make a 20,000 dollar investment or hopefully a one million dollar investment and be ready to keep diversifying regularly.
A great place to purchase ETFs is M1 Finance. They offer over 1300 different ETFs that you can trade for FREE. It really is an amazing deal for anyone wanting to buy into ETFs. Read my full M1 Finance Review.
6. Pay down your debt
When I had a bunch of debt and thought I was ready to get into investing this was a hard lesson for me. What I did was change my perspective on debt.
Instead of thinking of it as this thing that had to be taken care of one day, I switched to thinking of my debt as a negative investment. This means that the interest I pay is neutralizing the interest I am gaining by putting my money in what we think of as “normal investments”.
If you have credit cards or other high interest debt, there is probably little chance that anything you can invest in will generate more interest than your debt is taking from you.
While it doesn’t seem like fun, take that extra $1,000 and knock out some debt with it. The payments you no longer make every month will make it much easier to make investments in the future.
Tip: If this $1,000 seems like a drop in the bucket of paying down your debt then you should consider taking on a side hustle or part-time job. I have seen people do simple things like becoming an Uber driver to utilize their free time to pay off debt faster.
If you are drowning in credit card debt, consider taking out a 0% balance transfer credit card, so you can reduce your interest for as many as 24 months while you work hard and knock out that soul sucking debt.
7. Invest in your kids’ college education
I am sure that if you are facing your kids college soon you would like to be investing $10,000 right now instead of $1,000. What we all know is that college is coming and it is expensive.
Currently the best place to put college savings is into a 529 plan. These plans are available in all 50 states and you can invest in any 529 plan you want (ex. You live in IL, but like the TX plan better, then you can invest in TX).
The money invested in a 529 is after tax, but the investment grows interest free. Any money that comes out of the account and is used for qualified education expenses does not get any taxes.
A few states will allow you to deduct your 529 contributions from your state income taxes, so do your research and make sure you are getting all the benefits. If your state does not give you this incentive then I would open up a 529 with Wealthfront (for all the reasons we talked about earlier, just with college in mind).
If your child is a genius and gets a full ride to college, you can withdraw the money and pay income taxes on the growth. In that situation, you could also keep the money in the account and pray that junior blesses you with a grandchild. Then you can transfer the account over to Junior JR.
8. Start a Roth IRA
If you have been reading any investment advice on this blog you have probably learned that I love the Roth IRA as an investment vehicle. Having tax free money in retirement is a huge benefit to your long term retirement strategy.
With $1,000 there are a bunch of brokerages that are great places to open a Roth IRA. You will find that all of these brokerages that I mentioned above are on the list.
9. Invest in a small business idea
You have an idea that could make money. You think it is a great idea and are passionate about making it happen. Then taking your 1000 dollars and investing it in your idea is a great way to go.
Whether it is selling items on Etsy, putting together some online courses and selling them, or some other great product or service, you can do very well for yourself by taking your investment and reaching for your small business dream.
Final Thoughts
No matter which option you choose to invest your $1,000, the most important thing is that you are choosing to invest your money. The fact that you made it this far in the article tells me that you are serious about making a good investment and are willing to do some research so that you make the best possible decision.
#1 You did not include DCU. Digital Federal Credit Union. DCU.org
They allow 6% interest on the 1st $1000 of svings. 6.17% APY Check it out. I’ve been a member for almost 40 years.
I am not a big time investor by any means, how ever I am interested in doing low rise investing. Cannabis is what I been watching but I am not sure is this something I should be considering investing in. Would you share your honest opinions with me about this. Thank you in advance so very much.
Great article! I really enjoyed the wealth of knowledge shared. It was very easy to read and digest. I love the way you pull your audience in with the perfect verbage. This by far is information on that will change my life and the way I managed my money. Thanks
I am a 58 year old female disabled and a widow. My house and car is payed for and my adult child lives with me to pay household bills. I make a little over $1,200 a month and by the time I pay off all my bills it’s about $600 left over. I want to invest this money and draw a check every month off that investment. What can I do?
Thank you,
Leanne
Hi Leanne – You’ll have to begin building up your investments before you can begin making withdrawals. Given your age and limited income, I think you should sit down with an investment advisor – one recommended from trusted sources – to discuss your situation in some detail. It’s impossible to say on the web how you should best invest your money.
A well thought-out article in my opinion. Thank you Jeff for providing the intellectual community with such sound advice and prowess. As a beginner, I am thankful for what I have learned here.
You’re welcome Leo!
I think these are great resources to research. I know many people who will blow a thousand dollars because they don’t think they can invest it but this is proof that it can be done.
I like how you mention, change the way you think about investing- great point. Nothing is impossible.
I would like to know how to invest small amount of money so it can grow. I am 55 years old. Not too long before I retire. I do have 403b on my job and a Roth IRA outside of my job. I want to have money for college for my two last children. We have them wnenni was in my early 40s.
Please let me know how much more I can save for them for college
Lunnette
Hi Lunnette – I can’t give specific investment advice to you since I don’t know you or your specific situation. But please meet with a financial advisor who can determine your risk tolerance, as well as the amount of money you have, and the amount you’ll expect to need to pay for college.
Thanks for all the ideas and info! Just went to wealthfront and looks like they also charge a .25% fee now though 🙁
It’s hard for those with 1K to start in the Vanguard index funds as many require that 3K minimum!
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Lots of options – thanks for sharing !
I love that there are so many tools these days that allow people to get started investing with smaller amounts of money.
This is such an important post. There are so many ways to make $1,000, but there are also so many ways to invest $1,000 that no one really talks about. Investing so your money grows is just as important as making money.
Jeff,
I listened to the podcast (first time) even though I am subscriber for your blog and I just wanted to say kuddos for the courage and the boldness to speak about your faith and encourage others to invest into their faith and/or church. In a world where many (of us) shy away from acknowledging the tremendous way in which our faith in Jesus (and our relationship with Him) gives us peace and psychological/spiritual rest which in turn affects the other parts of our lives. Thank you being so open and honest with money and thank you for your generosity sharing knowledge that can empower others!! We are a young couple about to buy our first home and interested in learning everything we can learn about investing in the right places to help us achieve financial stability. Keep up the great work! – Sarah
1. Instead of trying your hands on all sorts of wealth building, a person could better build one successful wealth building process be it passive investing, active stock investing or real estate
2. For all wealth building a common equating investment is in behavorial psychology, which is needed in almost all sorts of wealth building. If you have no idea what is confrimation bias, outcome bias, recency bias, disposition effect, the use of pre-commitment its time to make an early investment.
3. kids opening roth IRA is good, but active mutual funds? survivorship bias and track records of active funds have shown that instead of building wealth, a neglect of (1) will cause you to learn the wrong thing due to outcome bias.
Jeff, Thanks for the awesome video! This is my first time visiting your site, and I will now be a frequent visitor. lol The bloopers with you, your brilliant son and patient wife were A+++!
My husband and I are in the almost-50-couple’s shoes. I will be researching your site a little further. lol
These are the kinds of things that people never think of ahead of time. I think stuff like this should be taught in a kind of financial common sense class in high schools.
I agree, this should definitely be introduced in elementary school versus geometry. The likelihood of an individual needing geometry to survive over financial literacy I’m sure is scarce.
Any time you can turn your kids toys (truck, bunny, magician’s hat….) into a prop for a FINANCIAL VIDEO you score something like 25 bonus points. I’m not sure you can make them tax deductions….but it’s still a win. Fun video.
Good thing you included the video here…Thanks a lot!!
I didn’t understand it totally but all that I know is that its regarding about the retirement benefits and what so ever, And I need to share it with grand pa for additional ideas.
Nice sharing of informative video..Thanks for sharing..
I loved this rant because I think the same thing so often! I laughed out loud when I read the “with some magical bunnies on the side” because I imagined a couple on a beach with magical bunnies hopping around them. Great job!
I guess people don’t understand what saving up for retirement really means. They need to realize that retirement money is for the 25 odd years you will live without a steady paycheck.
@EverythingFinance Agreed.