Investing is an incremental game, and building a solid portfolio takes time. Here are seven ways to invest $1,000 to help you get started.
Key Takeaways
- Paying down debt or creating an emergency fund is a way to invest $1,000.
- Investing $1,000 in an exchange-traded fund (ETF) allows investors to diversify and save on transaction costs.
- Debt instruments like bonds and Treasury bills are low-risk investments that may offer a steady yield.
- Investing $1,000 in individual stocks is risky but offers potentially higher returns, especially over longer time horizons.
1. Pay Down Debt
Paying off debt ensures a guaranteed return. The interest you save is essentially a risk-free investment. Once debt-free, you will be able to target your $1,000 toward an emergency fund into an account that earns interest, such as a savings account or money market account.
2. Invest in an ETF or Index Fund
Exchange-traded funds (ETFs) and index funds are a way to invest in the market with a small amount of money. These funds are transparent investments offered by financial institutions, and information is readily available for ETFs and index funds, including their holdings, commissions, and expense ratios. Pick the best broker for buying ETFs from our list of Best Brokers for ETFs.
Index funds are a passive, broad market investment through the major indexes, while ETFs offer more choices to customize a portfolio. With $1,000, you can choose multiple ETFs with different risk profiles. For example, you might invest $250 in a higher-risk, growth-oriented ETF, $250 into a dividend ETF, and $500 into a bond ETF.
3. Use Target-Date Funds
Target-date funds offer similar diversity to ETFs, but they require less effort when choosing. A target-date fund may have a higher expense ratio than your basic ETF, but in return, the fund will allocate and rebalance the account for you over time based on the target date.
4. Try a Robo-Advisor
Robo-advisors like Betterment, Acorns, and AssetBuilder use artificial intelligence (AI) and offer active management at lower expense ratios than the prices of human fund managers. This has prompted traditional advisors like Fidelity Investments and Charles Schwab to use AI for some of their offerings.
5. Low-Risk Debt Instruments
ETFs, index funds, and mutual funds are commonly stock funds with higher risk and return profiles than investments in debt instruments. U.S. Treasuries and savings bonds may carry competitive yields comparable to funds but at a lower risk.
Investment bank Morgan Stanley expects inflation to be around 3.5% by the end of 2023, with Treasuries offering modest inflation-adjusted returns. Treasury bond income is also exempt from state and local taxes.
6. Buy a Single Stock
Stock investment commonly requires a higher risk tolerance, but may garner higher potential returns for your $1,000. Over the last decade, an investment in Meta (META), Apple (AAPL), Netflix (NFLX), or Alphabet (GOOGL or GOOG) would have doubled or tripled $1,000. Stock investment requires research and timing. According to Morgan Stanley, stocks are priced to return 1.8% more than Treasuries in 2023, below the average spread of 3.5% over the last decade.
7. Trade Options and Forex
Options trading and foreign exchange (forex) trading are very high-risk investments and are commonly used by experienced investors. Options are a form of derivative contract that gives buyers of the contracts the right to buy or sell a security at a chosen price at some point in the future. The forex market is a global marketplace for exchanging national currencies. Many traders lose more than $1,000 as they spend years learning this trading craft and making consistently profitable trades.
What Is an Emergency Fund?
An emergency fund is the money set aside as a financial safety net for unexpected expenses. Emergency funds should typically have three to six months’ worth of expenses.
How Do I Balance My Portfolio?
Each investor has different financial goals and objectives. It’s always advisable to pay down outstanding debt or build an emergency fund to cover unexpected expenses. If you plan on putting the money to work in the markets, consider spreading it across several different asset classes, such as stocks, ETFs, and bonds to start building a balanced and diverse portfolio.
When Is the Best Time to Invest?
History shows that time in the market rewards investors over the long term. Although there may be short-term fluctuations, stocks generally trend higher over time. Significant market downturns during the 2007–08 financial crisis and the COVID-19 pandemic turned out to be buying opportunities for those prepared to wait patiently for returns. As investor Warren Buffett famously said, “Be fearful when others are greedy, and be greedy when others are fearful.”
The Bottom Line
With many available options, investors can use $1,000 to purchase ETFs, stocks, or bonds. Simply paying off outstanding debt may save money in interest payments over time and prove to be a wise investment.
