Every single investor had to start somewhere and having $1,000 ready to put to work is an accomplishment within itself. What you set out to do with your first $1,000 worth of investments can set the tone for your future investments, meaning getting it right from the start is critical. You might be overwhelmed with the number of options available to you, so we put together a comprehensive list of the best ways to invest your $1,000, including some unique ideas.
- Idea #1: Pay Down Existing Debt
- Idea #2: Open a Roth IRA
- Idea #3: Buy Some Cryptocurrency
- Idea #4: Start a Business
- Idea #5: Invest in Yourself
- Idea #6: Open a High Yield Savings Account
- Idea #7: Open a Certificate of Deposit (CD)
- Idea #8: Peer-to-peer lending
- Idea #9: Invest in a 529 Plan
- Idea #10: Open a Taxable Investment Account
- Idea #11: Invest in Art and Collectibles
Idea #1: Pay Down Existing Debt
Risk level: Minimal
Good for: Anyone carrying a balance from month-to-month
Return: Low to high (depending on debt carried)
We know this isn’t what you want to hear, but it’s what you need to hear. If you have $1,000 in free capital and have outstanding credit card debt, then the thing you absolutely must do is pay off your credit card debt. Your time to make other investments will come, but for now take the guaranteed return.
|Pro Tip: Credit Card Debt |
It’s common for credit card interest rates to exceed 15%, meaning a guaranteed return of +15% depending on your specific credit card’s interest rate. There are very few investments that would yield you a 15% return.
High interest rates aren’t limited to credit cards. If you have any kind of loan, you want to be sure to check the interest rate on the debt to see if you would be better off paying off some of the debt before investing. There’s no hard and fast rule, but as a general guideline you should aim to pay off any debt that’s costing you more than you could earn back by investing in the market. You’ll want to get rid of that debt sooner than later.
Idea #2: Open a Roth IRA
Risk level: Minimal
Good for: Anyone wanting to save for retirement
Return: Low to high (depending on securities purchased)
A Roth IRA account is an investment vehicle which allows investors to pay taxes on contributions and make tax-free withdrawals at a later date with a few restrictions. Functionally, it’s the same as any investment account that allows you to purchase and sell securities, but you receive some great tax benefits. This account is great for individuals who believe they will be in a higher tax bracket during retirement than they are now. Keep in mind that Roth IRAs may have minimum deposit amounts, however, $1,000 is enough capital to get started with certain brokerages.
|Pro Tip: Traditional IRAs|
A traditional IRA is also a great way to get started on saving for retirement. We recommend investing in a traditional IRA if you’re someone who expects to earn less money in the future. That’s mainly because through a traditional IRA you pay taxes when you withdraw funds and not when you contribute to the IRA.
Idea #3: Buy Some Cryptocurrency
Risk level: High
Good for: Anyone interested in alternative assets or wanting to diversify their portfolio of investments
Return: Low to high (cryptocurrencies are highly volatile)
If it were 2010, you would be right to look at us sideways for suggesting buying some cryptocurrency. But the year isn’t 2010 and it seems that cryptocurrency is here to stay as an alternative asset class. In fact, even Wall Street banks have come around to Bitcoin, trading and in some instances even holding the cryptocurrency.
If you’re interested in a high yield and high risk asset, consider purchasing some cryptocurrency to add to your portfolio. While there are many exchanges you can use to purchase cryptocurrencies, we recommend beginning with Coinbase since it’s one of the longest running exchanges and is extremely user friendly. Since you’re likely a beginner investor if you’re reading this piece, we would recommend starting with a well known cryptocurrency such as bitcoin or litecoin. Keep in mind that you can buy fractional shares of coins, meaning you won’t have to purchase an entire bitcoin or litecoin.
Idea #4: Start a Business
Risk level: High
Good for: Someone who has an entrepreneurial spirit
Return: Low to high (your business will ultimately determine this)
It used to be the case that starting a business meant renting office space or buying expensive equipment, but the internet has eliminated barriers to entry in dozens of industries. That is, having a large amount of capital isn’t necessary to generate income through a small business. Consider utilizing your $1,000 to start a small business.
Now I know what you’re thinking: what kind of small business can I even set up for $1,000? You’d be surprised at your amount of options. Here are just a few you can take and run with:
- Local landscaping
- Website design services
- Ghostwriting services
- Digital marketing
- Wedding planner
- Pet sitter
- Podcast editing service
The truth is that $1,000 is more than enough to set up your own website and set up a few advertisements to route traffic to your site. If you’re wanting to set up a business with just $1,000, you’ll likely want to opt for selling a service rather than a product. The reason is that services, especially in the digital age, are easier to bootstrap when compared to companies focused on offering physical products. A great example of this is AirBnb. While it didn’t invent booking stays at vacation rentals, it provided a much needed service to users and renters.
Idea #5: Invest in Yourself
Risk level: Low
Good for: Someone who could use technical skills to advance their career
Return: Moderate (even if it doesn’t lead to financial gain, you’re better equipping yourself for success)
Perhaps the best investment you can make is in yourself by learning a new skill, which might get you a promotion or make you an indispensable part of any work team. $1,000 is more than enough money to buy an online course and learn a technical skill.
For example, if you’re a digital marketer, consider purchasing a SQL course. If you’re an analyst, consider learning tableau. While the investment might not pay dividends in the traditional sense, it might get you a bump in salary or a higher bonus. Even if it doesn’t, you’ll be arming yourself with a better skill set, which you can leverage for higher pay at a different employer.
Learning a new skill isn’t limited to the digital world, you can learn how to change the oil on your car, how to fix faucet leaks, or even how to fix a washing machine. These are all skills which will pay dividends in the future in the form of lower maintenance costs. It’s not flashy, but it’s effective at increasing your wealth in the long-term.
Idea #6: Open a High Yield Savings Account
Risk level: Low
Good for: Someone who wants a return on money they otherwise need access to
A high yield savings account is best for those who think they will need to dip into their investment in the near future and therefore need a financial vehicle which allows them to retract their investment. For example, if you’re saving up for an engagement ring, a high yield savings account might make sense for you since you’ll be able to earn interest on your savings and then withdraw those savings when you’re ready to purchase the ring with no penalty.
Opening a high yield savings account is guaranteed to give you a small return on your $1,000. Despite the account name, you should expect modest returns on your deposit. In fact, the highest interest rates being offered right now range from 0.60% APY to 0.70% APY. Over a five year timeline with a $1,000 investment and a 0.70% APY, that would only net you a $35 return.
Idea #7: Open a Certificate of Deposit (CD)
Risk level: Low
Good for: Someone who wants a return on money they will likely need, but not until after a predetermined period of time passes (e.g. 2 years)
A certificate of deposit is a financial product which pays interest earnings in exchange for depositing a predetermined amount of money with a financial institution for a predetermined period of time. For simplicity, you can think of a CD like a Savings Account with a lockup period, which can range from months to years. During the lockup period, you won’t be able to access the capital, which also might make it a solid investment choice for someone who lacks self-control. Deposit requirements for CD’s also vary, but $1,000 is more than enough to meet the principal requirements for short-term CDs.
With a CD, your investment will offer a higher interest rate the longer you’re willing to commit to keeping your money stored with the bank. For example, a 2-year CD will offer a higher interest rate and therefore higher interest earnings than a 1-year CD will. Due to their time restrictions, CDs are best for people who don’t foresee a need to withdraw their cash and would like a higher return than traditional high yield savings accounts are offering.
Idea #8: Peer-to-peer lending
Risk level: Moderate
Good for: Someone bored with traditional investment options looking for something new
Peer-to-peer lending is exactly what it sounds like: You lend money to a person who is in need of a loan. However, unlike lending to your family or friends, peer-to-peer lending platforms report payments (or lack of) to credit bureaus, meaning if a borrower defaults on their loan then their credit score will be damaged. In theory, peer-to-peer lending is pretty much the same as getting a loan from a bank. Only in this case, instead of the bank profiting off of interest, it’s you, the lender, pocketing the interest from the loan.
Peer-to-peer lending doesn’t come without its risks. Just because a platform reports delinquencies on loans to credit bureaus, doesn’t mean every borrower will repay their loan. That said, peer-to-peer lending has gone mainstream in the past few years and while it used to be an avenue for people with poor credit to get loans, it’s now a competitive marketplace for loans, meaning even people with good credit use peer-to-peer lending platforms. In some instances, these platforms can provide more competitive rates than banks.
Idea #9: Invest in a 529 Plan
Risk level: Low
Good for: Someone who wants to attend college in the future or someone with children who will likely attend college
A 529 plan is an investment vehicle which allows you to invest after-tax income and grow it tax-free. You can use the money in a 529 plan for educational expenses like college tuition, paying back certain student loans and even K-12 tuition if you’d like your children to attend a private school.
Keep in mind that if you withdraw the money from a 529 plan without having qualifying expenses, you’ll be on the hook for income tax on any earnings as well as a 10% federal penalty tax. State and local taxes may also apply depending on where you open the account. Therefore, it’s not a good idea to open a 529 unless you’re certain you’ll be utilizing it down the line for educational expenses.
There are certain exceptions that can get you off the hook for the aforementioned penalties. One of them is receiving a scholarship to attend college. Another would be attending a military academy.
Idea #10: Open a Taxable Investment Account
Risk level: Low to High
Good for: Someone with medium-term investment goals
Return: Low to High
Once you’ve exhausted tax-advantaged retirement accounts (see idea #2), you should consider opening a taxable investment account. The account would allow you to buy securities, including stocks and bonds. If you’re a beginner, we don’t recommend purchasing single-name stocks. We recommend opting for a mutual fund.
|Pro Tip: Sometimes Taxable Accounts Should be Preferred |
Taxable investment accounts don’t necessarily have to be contributed to after your tax-advantaged accounts. Specifically, if you’re interested in investing medium-term or might need access to the money again in a few years, it may be to your advantage to use taxable investment accounts.
Mutual funds essentially take your money (along with other people’s money) to buy a diversified portfolio of securities. There are many benefits to buying a mutual fund over single-name stocks, but perhaps the biggest is diversification of your investment. Instead of owning say $1,000 worth of Tesla, you’d own $1,000 worth of whatever investments are in the mutual fund.
Idea #11: Invest in Art and Collectibles
Risk level: High
Good for: Someone who wants to take a stab at speculative investments
According to a Deloitte report, 88% of wealth managers agree that art and collectibles should be part of a wealth management offering. You might be surprised to learn that there’s a whole industry behind high-end art financing. With all that said, with only $1,000 to invest you should taper your expectations. The value of a piece of art or a collectible is a product of a variety of factors, but in all likelihood any piece of art purchased for $1,000 is unlikely to appreciate to much higher values. As with any extremely speculative asset class, you should be prepared to lose your entire investment should you choose to invest in art. Nevertheless, it’s an option, albeit a risky one that might not yield a return.