With so many types of investments to choose from, figuring out where to put your money can leave you scratching your head. But don’t let a little confusion stand in the way of a potential profit.
Take a deep breath. You’ve got this.
If you can invest $1,000, you have a lot of great options.
In this post, we'll explore ten smart ways you can invest $1,000 and how to choose the right one for your needs.
1. Use an online trading platform to pick your investments
Online discount brokers charge a reduced commission but do not provide investment advice. This may be a good option for you if you already have some experience with investing. There are a lot of online brokerage accounts out there so be sure to take some time to research which one is best suited for you.
Pros of using an online trading platform:
- Reduced cost: Because this isn't a hands-on option, online brokers take a reduced commission. This is the number one benefit to using an online trading platform.
- Unbiased service: Online brokers have no interest in where you invest your money, so in theory, you can trust any information they may share.
- Learn as you go: The major discount brokers have a wealth of investment information available on their websites, so you can browse and learn as you invest.
Cons of using an online trading platform:
- You’re on your own: Don’t expect an online broker to tell you whether an investment is good or bad. When you use these services, you maintain full responsibility for evaluating investments.
- Potential hidden fees: Although this is a low-cost option, many online brokers charge for things you might think are included. Read all the fine print before you choose your trading platform.
- Minimal customer service: This can vary among online platforms, but most discount brokers do not have extensive customer service. It’s how they keep their costs low.
Bottom line: If this is your first time investing and you feel like you need a little more guidance, this may not be the best option for you. Keep reading to learn about more ways to invest.
2. Get help from a robot
If you do not have prior investing knowledge, using a robo-advisor may be the way to go. Investment companies create robo-advisors, or automated software, that manage portfolios and use artificial intelligence to carry out the best investing tactics. This allows you to sit back and forget about your investments while the robots take control and manage your accounts.
The level of human involvement varies among robo-advisors from brokerage to brokerage, so do some research to find one you are most comfortable using.
Pros of robo-advisors:
- Low-cost portfolios: Most robo-advisors construct their funds using low-cost index-based exchange traded funds (ETFs). This usually equates to high-value funds.
- Simple to use: Ease of use is one of the biggest benefits of using a robo advisor. Open an account, set up regular contributions, answer a few questions and you're on your way to investing.
- Tax efficiency: Many robo-advisors offer services that can increase your after-tax returns (if you’re investing within a taxable account).
Cons of robo-advisors:
- Zero personalized service: You may have unique financial goals or worries that would benefit from personalized service, but you won’t get this with robo-advising. Also, don’t expect anyone to calm your nerves if the market takes a hit.
- Higher cost than other all-in-one funds: Robo-advisers are still considered inexpensive in the world of investing, but they come at a higher rate than your standard all-in-one funds.
Bottom line: Robo-advisors are ideal for people who are new to investing and want a low-maintenance option.
3. Peer-to-peer lending
If you choose to participate in peer-to-peer lending, you can loan your money to other individuals or businesses and earn some interest. Online services such as Lending Club and Upstart pair borrowers and lenders together and make the process very simple to use.
Pros of peer-to-peer lending:
- Greater potential: The opportunity for reward is greater with peer-to-peer lending, but this doesn’t mean every investment will produce stellar returns.
- Risk diversification: You can spread your investment over many loans to keep risks minimal.
- Control: You choose where you want to invest your money.
Cons of peer-to-peer lending:
- Greater risk: With peer-to-peer lending, your money isn’t insured, so you must be careful about vetting any loans you make.
- More work: You can spend a lot of time and energy evaluating investments with peer-to-peer lending.
Bottom line: Peer-to-peer lending is a good option for someone who wants to invest through a non-traditional route. This type of investment comes with the feeling that you’re helping small businesses succeed, and that entices many people.
4. Put the money towards paying off your debt
Although this investing method doesn’t seem very fun or exciting, it is a smart move if you have debt of any kind. Whether you've racked up your credit card bill or have student loans to pay off, any debt is a “negative investment” because essentially it costs you more to have debt than it pays to invest. Paying off your debt now will lower your monthly payments and will make investing easier in the future.
Pros of focusing on debt:
- Financial freedom: At the risk of sounding obvious, there are many benefits of living without debt. Once you have financial freedom, you can start investing your money with less worry.
- Save money over time: If you have a credit card with 10% interest, think about how much you’re spending to keep that debt over time.
Cons of focusing on debt:
- Missed opportunities: The sooner you start investing, the more you stand to gain over time.
Bottom line: This one is a very personal choice that will depend on your situation. If you have a lot of debt or any bad debt, it’s probably wiser to focus on paying it down before investing. You could end up with more money in your pocket this way.
5. Open a savings account
This option is great if you want to earn some interest on your $1,000 but don’t want to risk losing any of the money. Online savings accounts are a good option for you to save and grow your money because you earn a higher interest rate on your money compared to a checking account and the number of times you can withdraw from the account is limited by federal regulations.
Pros of investing in a savings account:
- Only gains: Savings accounts are secured, so you won’t risk losing a penny of that $1,000 investment.
- Easy access: You can withdraw money from your savings account at any time.
Cons of investing in a savings account:
- Low interest: Because savings accounts are safe, they also don’t offer much in terms of interest.
- Not the best for long-term goals: Investment accounts are better options for planning for things like buying a new house or investing in a college education.
Bottom line: It’s a good idea to have a comfortable amount of money invested in a savings account, but this amount is different for everyone. If you’re comfortable with your savings, it’s probably time to choose an investment account.
6. Invest in an established company
This is another safer way to invest your $1,000. Instead of “playing the lottery” by investing in a startup, buy shares of an established company that you know will most likely do well.
Pros of investing in established stock funds:
- Stability: Companies at this level have a steady cash flow and aren’t likely to see the same swings as smaller companies.
- Knowledge: Because these industry behemoths are so well discussed, there’s a lot of information on what’s going on behind the scenes.
Cons of investing in established stock funds:
- Less ownership power: Buying stocks makes you part owner of a company. You can cash in on this benefit by attending shareholders’ meetings and voting on key issues. However, your money isn’t likely to get you a large share in these well-established companies, so your opinion will not carry much weight.
- Lower returns: Larger companies are safer, but they also have less room to grow than smaller ones. Because of this, you can expect smaller returns.
Bottom line: Investing in an established company is generally safe, but the potential rewards are lower than with a smaller company. This is a good investment for a conservative investor or one who is in it for the long haul.
7. ETFs (exchange traded funds)
When investing, one of the most important things to remember is that you must diversify your money. It is never a good idea to put all of your eggs in one basket. ETFs make diversifying your stock investments easy. Simply put, an ETF trades like a stock on a stock exchange and looks like a mutual fund. Like a mutual fund, you buy small amounts of many different stocks. Unlike a mutual fund, you trade ETFs in shares like an individual stock.
Pros of ETFs:
- Lower fees than managed funds: Since ETFs are passively managed, they come at a lower rate than higher-maintenance managed funds.
- Transparency: ETFs still trade like a stock, so you can monitor the fluctuations with the ticker symbol of your ETF.
- Capital gains tax exposure is limited: ETFs are usually more tax-efficient than mutual funds because most of the tax on capital gains is paid on sale.
Cons of ETFs:
- Costs may be higher: Due to management fees, the cost of investing in an ETF may be higher than if you were to invest in each individual stock.
- Less control: When you invest in an ETF, you are investing in a group of stocks and cannot pick and choose where your money goes.
Bottom line: ETFs are good choices for new and seasoned investors depending on your personal investment goals.
8. Start a Roth IRA
A Roth IRA is a unique retirement account that you fund with after-tax income. You can begin putting money into a Roth IRA at any age. Once you are 59 ½ years old, all earnings on the account and withdrawals are tax-free. Having a tax-free retirement account is an incredibly smart investment to make for your future!
Pros of starting a Roth IRA:
- Tax free withdrawals: As long as you withdraw money from your Roth IRA according to guidelines, the withdrawals are completely tax free.
- Retirement security: The earlier you start a Roth IRA, the more comfortable you may be when it comes time to retire.
- Money in a pinch: There may be penalties for withdrawing before retirement age, but it is possible.
Cons of starting a Roth IRA:
- Income limits: If you make over a set amount of money, you cannot contribute to a Roth IRA. For example, if you are married and filing jointly, your income must be under $196,000 to contribute.
- No immediate tax deductions: Traditional IRA contributions are deductible in the year they were made, but you must wait until retirement to see the tax benefits of a Roth IRA.
Bottom line: Retirement accounts are a sound investment, and if you don’t already have one, consider investing in a Roth or traditional IRA. On the other hand, if you’re comfortable with your retirement plan or are looking for a short-term solution, consider other investments.
9. Start a small business
Have you always dreamed of turning your passion into a business? Maybe you design funky pieces of jewelry that you want to sell on Amazon or Etsy. Or you’ve always wanted to sell your famous homemade apple pie at your local farmer’s market. Use your $1,000 to cover start-up costs and make your dreams become a reality!
Pros of starting a small business:
- Increased control: Instead of investing in companies where someone else is in control, you control your financial destiny when you start your own business.
- Greater potential for reward: If your small business takes off, any returns you may get from an investment account will pale in comparison.
Cons of starting a small business:
- Major risk: This is one of the few investments on this list where you could lose everything. You hold responsibility for your business's success or failure, and there are no guarantees.
- Major time investment: Running a small business can feel like a 24/7 job. Make sure you’re up for the task before you even consider going this route.
Bottom line: If you have an entrepreneurial mind and an idea for a small business, this may be the best option for you. The rewards can be astonishing, but the risks are equally immense.
10. Invest in yourself
Lastly, you can use your $1,000 to invest in yourself. Look into taking a class or two at your local university or enroll in a certification class of some sort. Investing in your personal development and education is always a great investment.
Pros of investing in yourself:
- Enhanced value: When you invest in your personal development, you are adding value to your resume that can be used to command a higher salary.
- Improved confidence: You’ll gain confidence with every step you take towards personal fulfillment.
Cons of investing in yourself:
- No guarantees: You can learn a new skill, but it’s up to you to turn that skill back into cash. There are no guarantees that you’ll make more money by investing in yourself.