9 Smart Ways to Invest $1,000

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 Peek: 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. High Yield Emergency Fund

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

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.