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?
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. Peer to Peer Lending
Easy to use services like Lending Club have allowed peer-to-peer lending to become a major player in the personal loans market place.
You may be familiar with crowdfunding, where people ask others to help them cover the costs of a specific expense or offer a gift in exchange for paying to get a business idea off the ground. Peer to peer lending works in a similar fashion, but the crowdfunding goes toward funding a loan. 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.
There are several P2P networks that can provide very good returns. The reason I recommend Lending Club is because I have used it the most extensively and have had great success over the years. I go into full details about how it works and my returns in my Comprehensive Lending Club review.
Lending Club gives you a credit assessment of each person looking to borrow. People with lower credit ratings will pay you higher interest on the loan, but you have a higher risk of them defaulting.
One of the best features of Lending Club is that you can make investments as small as $25. This means you can diversify greatly between different risk levels in your lending. Even though I have several thousand dollars invested in the platform now, I rarely invest more than $100 in a single loan.
The ability to diversify into so many loans makes Lending Club a very appealing place to invest your money. I have seen several people take a piece of their IRA and diversify into P2P lending by investing as much as $100k.
2. 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:
Wealthfront is taking the person to person financial planner out of financial planning. Their Path platform gives you a comprehensive view of all your investments and helps you make the best investment decision for your goals.
On top of providing great advice and adjusting your investments for you, Wealthfront also offers no fees on the first $10,000 you invest with them. This means your $1,000 investment can grow with no fees and you get top notch advice.
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 accounts no matter the minimum balance. Since Wealthfront is free up to $10,000 and, in my opinion, the investing differences are minimal, I have to say Wealthfront is the better deal.
If you were going to be investing more money, like a $500,000 investment, then I would probably lean toward Betterment because I have more experience with them and the fees will be similar. To be honest, either service is going to do a very good job for your long-term investing.
What makes me like Betterment so much is their perspectives on the market. I did an interview with the Betterment CEO, Jon Stein. In almost four years the company grew from an idea to an investment company with $500 million in investments.
Jon’s belief, and this is reflected in the Betterment software, is that the markets are representative of the global economy. His expectation is that the markets will continue to improve over the long haul as we become more productive and the overall global economy continues to improve.
3. Pick Your Own Stocks with an Online Discount Brokerage
Picking your own stocks is not for everyone, but if you enjoy doing the research you can really clean up by purchasing individual stocks.
If you are going to go the DIY route then you will want to make sure to use a discount brokerage like Trade King. This will save you a ton of money over a full-service brokerage and provide you with all the tools you need to do your research.
In my Trade King review, I found the brokerage to be both user-friendly and to have exceptional tools for portfolio growth. There are also other great options out there you should look into such as Motif Investing and Scottrade before making your final decision.
More from GFC, Below
There really are a large number of good online discount brokers, so take a little time and find which one meets your individual needs.
4. 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 TD Ameritrade. They offer over 100 different ETFs that you can trade for FREE. It really is an amazing deal for anyone wanting to buy into ETFs.
5. 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 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 lot of interest, but they are FDIC insured so you now you have no chance of losing the money and you can with draw at any time. Some of the best interest rates you can get right now are:
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.
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.
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.
Whatever decision you make, you should be proud of yourself for taking the time to be thoughtful with your money.