Jovan Johnson, MBA, CFP®, CPA/PFS
Many individuals fall into the trap of believing that you need to be “rich” in order to begin investing. However, the fact is, you can easily get started investing with $1,000! Right now, $1,000 may not seem like a lot of money to invest, but with the simple act of getting started, you begin to establish healthy saving habits. To help you reach your long-term financial goals, establishing healthy saving habits will be more important than the amount of money you are investing.
If you desire to build generational wealth and meet your long-term financial goals, investing is one of the best ways to achieve this. Many people begin investing too late and they miss out on years of potential gains.
5 Best Ways To Invest $1,000
If you have at least $1,000 laying around, here are five suggestions for what to do with it:
- Open a Roth IRA
- Consider Using a Robo-Advisor To Help With Automating Investments
- Invest in Exchange-Traded Funds (ETFs)/Index Funds
- Invest in Dividend Paying Stocks
- Invest in Your Own Personal Development
Below, we will take a look at each of these in more detail. But first, we must discuss creating an emergency fund and paying off high interest debt.
Create an Emergency Fund
Before you focus on investing, you need to have money stashed away for a rainy day. Emergencies can be unexpected and significant, so you want to have a fund set aside to cover these expenses. The biggest benefit to having an emergency fund is that it changes a crisis into an inconvenience.
Ideally, you want to have 3-12 months of non-discretionary expenses saved. The key is to place this money in a savings account with a high interest rate, FDIC insurance, and no monthly fee. You want this money to grow, be easily accessible, and safe.
Pay Off High Interest Debt
Investing may seem attractive due to the potential to earn higher rates of return. However, it is actually more beneficial and efficient to pay off high interest debt first, such as credit cards. According to creditcard.com, the national average credit card interest rate is a whopping 16%. Most likely you won’t find any investment that can provide you with this type of return. In most cases, you will earn a greater rate or return by paying off your high-interest debt first.
Once you take care of the emergency fund and high-interest debt, investing becomes very accessible.
Here Are Our Top 5 Ways To Invest $1,000:
1.) Open a Roth IRA
One of my favorite types of investment vehicles is the Roth IRA. Although you may not receive a tax deduction for your contributions today, you may have the ability to withdraw tax free money in retirement. This is a huge benefit for your long-term financial strategy. The goal is to have flexibility during retirement and pay as little in taxes as possible. There are many great custodians where you can open a Roth IRA with just $100.
2.) Automate Investing with Robo-Advisors
Robo-advisors provide online automated investing services that are widely available to everyone! You can even open an account and start investing with as little as $100. There are many great robo-advisors out there such as Betterment.
Essentially, you enter your goals, time horizon, and risk tolerance and the platform will do the rest. It will select the investments for you based on your inputs. Typically, there are no account minimums. The only downside to robo-advisors is their lack of ability to update your investments as your life and goals change.
There are even opportunities to invest your spare change! Acorns allow you to link your debit and credit cards and it will round each of your purchases to the nearest dollar. This is a great platform to get started with when you are a beginning investor. However, I wouldn’t depend on this app alone to build your full long-term investment portfolio.
3.) Invest in ETFs/Index Funds
ETFs are an amazing option to invest in a diversified manner. Also, many of these funds do not require a large initial investment, so you can get started with as little as $100. ETFs combine a variety of securities into one investment, creating opportunities for diversification. Diversification is very important as it can help you with four things: minimize your risk of investment losses, reduce your overall portfolio volatility, safeguard you against market downturns, and provide you with broader market exposure.
If you are looking for a set it and forget it strategy, consider ETFs that track index funds, such as the S&P 500.
A great place to start is Betterment. This platform allows you to purchase fractions of ETFs, which is how you can invest with $100 or even less! You can choose from a variety of ETFs by category.
4.) Invest in Dividend Paying Stocks
Another way to invest $1,000 is in high dividend paying stocks. With these stocks you have the ability to create an extra stream of income or reinvest the dividends to acquire more shares of the stock. Growing and stable companies that have great track records, typically offer dividends to their shareholders. Even if your $1,000 can only buy a few shares of dividend paying stocks, you can re-invest the dividends and acquire more share or cash out the dividends. Reinvesting dividends can be a great strategy, as over time you won’t have to deplete your bank account to buy more shares. Many brokerage firms do not have trading fees anymore, so now is an amazing time to get started with this strategy!
5.) Invest in Your Own Personal Development
You can never grow or learn too much. There is always more to learn. This is absolutely the best investment you can make. Reading books, taking classes, and learning new skills can increase your earning power. By investing in yourself, you can turn $1,000 into $10,000, $100,000, or even more.
Final Thoughts
Remember that getting started is more important than the amount you are going to invest. Once you get into the habit of saving and investing, it will become second nature when you are ready to invest more money. Although it is important to invest your money, make sure that you are taking care of your emergency fund and high-interest debt first.
Investing is not just for the wealthy; it is necessary for all of us! This is one of the best ways to build wealth. With technology, apps, and robo-advisors, investing is so much easier today than ever before. Investing is accessible to everyone.
Remember that before investing you should: understand the risks, know what you are investing in, spend time in the market vs. timing the market, and consider your time horizon, risk tolerance, and goals.
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Disclosures
None of the information provided is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.
