What would you do right now if I handed you $1,000 cash money and said to you:
“You can have this $1,000, but you got to tell me the best way to invest $1000.”
How would you respond?
Me personally, had you asked me that question or confronted me with the same scenario 5-6 years ago, I would have stuttered and probably just said to save it.
While saving isn't a bad answer per se, at the end of the day there are better ways to invest $1,000. Whether it is your first time investing $1,000, you just got your tax refund, or you are simply looking to invest $1,000 every month…
Today we will discuss the best options available for investing $1,000!
The 7 Best Ways to Invest $1,000
Real quick, prior to looking at the 7 best ways to invest $1000, keep in mind that you can invest more when you make more (duh).
Here are Money Life Wax our team is huge on helping people figure out ways to create more money either outside of their full time job or with entreprenesuhip.
So in addition to investing $1,000 per month, here is a great read for making an extra $1,000 per month to bookmark for later!
*Remember – every dollar invested today doubles in 10 years on average!*
1. Start Your 401(k)
If you haven’t got one already, a 401(k) retirement plan is one of the best ways to invest $1,000 — especially as you could literally double your money (more on this in a second).
A 401(k) is a retirement savings plan that is sponsored by your employer. One of the benefits is that you can invest a chunk of your paycheck in one each month before any tax has been deducted. In other words, a 401(k) allows you to save for your retirement and enjoy tax breaks at the same time, a win-win in anyone’s book!
Plus, with a 401(k) plan, your employer will often match your contributions. How much your employer pays into your 401(k) will depend on the conditions of your plan, but it is not uncommon for employer contributions to match half or even all of your own. Additionally, you don't have to know things like dividend power over index funds, or all the other technical investing jargon.
So how much should you put into your 401(k) each month? While you don’t want to be short of money for food, bills, and general living, you should be mindful of the percentage of your salary that your employer will match, the most common amount being 3%. Otherwise you could be leaving money on the table.
How would a 3% match work? Let’s say you put in 3% of your $60,000 salary, or $1,800, your company would also put in $1,800. While you could add more, say $2,000, the amount your employer contributes will always be capped at $1,800 as that is 3% of your annual salary.
It’s also important to note that 401(k) plans do not allow lump-sum contributions, so the $1,000 you have would need to be used to pay for some of your monthly expenses to offset the 401(k) payments you are making.
2. Look into IRAs
Maybe your employer won’t match 401(k) contributions, or you are self-employed. In either of these cases you might want to consider opening an individual retirement account (IRA).
Like a 401(k) plan, IRAs are tax advantaged, meaning you can pay into one before tax has been deducted. However, because an IRA isn’t sponsored by your employer, you won’t benefit from any matching.
Now, the U.S. Government offers two types of IRAs: Traditional IRAs and Roth IRAs. The primary difference between these two savings vehicles is how and when you get a tax break.
With a traditional IRA, you get a tax break at the time the money is invested, but then have to pay tax in retirement. With a Roth IRA, you don’t get a tax break when your money is invested, but your withdrawals in retirement aren’t taxed either.
So… it all boils down to whether you think your tax rate will be higher or lower in retirement than it is now. If you can answer that question without any doubts, you can theoretically pick the type of IRA that will give you the biggest tax savings.
In a nutshell:
- If you expect your tax rate to be higher in retirement, opt for a Roth IRA
- If you expect your tax rate to be lower in retirement, opt for a traditional IRA
Your $1,000 should be more than enough to start an IRA, too! As you progress, you can learn about cool things like backdoor Roth IRA options and more.
3. Check out Index Funds
Ask any financial planner about index funds and you’ll find the vast majority agree that they are one of the best ways to invest $1,000 and build long-term wealth. Sure, it would be nice to invest $100,000 into index funds, but starting with $1,000 is a solid start!
Even legendary investor Warren Buffet has long championed low-cost index funds as one of the most sensible investments anyone can make.
While they may sound intimidating, index funds are actually pretty straightforward. They are basically a way of investing your money across a broad selection of stocks or bonds. But instead of choosing and buying individual stocks, you own a small piece of every company or asset in the index fund, which reduces your overall risk.
For example, if you invested in the S&P 500 Index, you would own stocks in giants like Apple, Microsoft, and Google. The best part of all is that index funds are low-cost and consistently outperform actively managed funds.
You can invest in index funds through your 401(k) retirement plan, your IRA, or a brokerage account. Just be sure to check the minimum investment amount of each index fund so you can eliminate the ones that are out of your reach.
Just investing $300 a month (or $10 a day) can lead to half a million in 30 years! Now imagine what $1,000 would do!
4. Download Robinhood and consider stocks…
Fancy yourself as the next Warren Buffet? With Robinhood , you can make unlimited commission-free trades in stocks, ETFs, and options.
One of the biggest attractions of Robinhood is that it does not have an account minimum, meaning you can get started right away with as little as $1.
Where Robinhood really shines is that it is a commission free platform. That means you can trade for free, with every dollar saved on commissions effectively an extra one in your pocket.
With a website and a smartphone app, you can access your Robinhood account from virtually anywhere you’ve got an internet connection.
N.B. Any investments you make via Robinhood are not without risk. Never invest more than you can afford to potentially lose.
5. Check out Robo Advisors
If the thought of investing in index funds and other stock options leaves you feeling a little uneasy or you literally haven’t a clue where to start, consider taking advantage of Robo-advisors.
Robo-advisors are algorithm-driven digital platforms that use information you provide them to make investment decisions on your behalf. You tell a Robo-advisor about your financial situation and future goals, and it will offer advice and make suitable investments for you.
With $1,000 to invest, Robo-advisors make a lot of sense because they typically have lower active management fees than their human managed equivalents. This means you get all the benefits associated with active management, without having to pay the traditional fees.
6. Invest in Yourself
When we talk about investing, we usually assume it’s going to be in retirement plans, savings accounts, real estate, vehicles, and other items that may give us ROI. But what about when you invest in yourself?
It doesn’t need to cost a fortune (in fact, it’s often free) and the potential returns can last a lifetime. So while you might not be the best way to invest $1000 for financial purposes, you can use $1,000 (or less) to make yourself better (think health).
The bottom line is health is wealth, so anything that makes you healthier should be viewed as a solid investment. After all, what’s the point of having materialistic wealth if you’re not around long enough to enjoy it?
In fact, the topic of investing in yourself is so broad that I couldn’t possibly do it justice as part of this article. That’s why I’ve written a separate post all about it and it starts with getting out of your comfort zone in most cases!
Here are some great tips to invest in yourself:
- Assess your bad habits
- Get into fitness
- Watch what you consume (Yes food, but also mentally, i.e. social media)
- Fix some of your time-consuming activities to focus on you!
You could also just take a vacation with $1000 and get a mental break!
7. Invest in Your First Company
The final investment option in our list is one that many people don’t consider for whatever, but that could have a huge impact on their lives. The good news is that investing in your first company does not necessarily need to cost more than $1,000.
Plenty of businesses nowadays are set up with modest investments, with the founders choosing to center their companies on something they are passionate about.
Maybe you could start a blog and write about topics that interest you or that you know a lot about. The initial investment in such a venture might not actually cost you anything, as many blog hosting platforms offer free options. This provides a great way for you to try your hand at blogging, without dipping into your savings.
Perhaps you’re good with your hands and have a flair for gardening. Why not consider starting a small landscaping business? While you might not be able to afford to invest in expensive pieces of machinery at the start, most can be hired on a daily basis. Once you’ve got a few projects under your belt and people can see that you are the real deal, you’ll be amazed how quickly new work comes in via recommendations.
Some of the benefits of investing in your own company are that you can often operate from home, set your own hours, and focus on a niche that means something to you.
Quick tips to consider before starting a company:
- Are you student loan debt free? It's easier to take risks with less debt.
- If you have $1,000 to invest, what is needed, and what is a want? Don't just spend money, look at a company as an investment
- Learn about business ownership by first starting with a side hustle, here are 50+ ideas.
Final Word on Investing $1,000:
Sometimes people argue online which is a better investment vs another, BUT it's vital to always keep in mind that personal finance is PERSONAL.
One married couple might want to invest heavily in their 401K before index funds vs. a young professional who doesn't have a family might be able to be aggressive with individual stocks.
As the saying goes, “You gotta do what is best for you,” sometimes.
Hopefully this article provided you with a solid foundation as to which is the best way to invest $1000.
Frequently asked questions
What is the minimum amount of money I can invest?
You can invest money with certain platforms with as little as $1 or $5. Some of the bigger brokerages and companies may require a higher amount.
What should I do if I am new to investing?
First thing before investing is do some research. Ask professionals and don't commit to anything, avoid your impulses. Second, be sure to go with safe, conservative investment or if you're really unsure, start with an IRA. Recognize that most investing takes time, expertise, and time in the market. If you're unwilling to work with those key ingredients, it's best to consider starting with retirement investing and general saving and progress from there.
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎