You've got $1,000 and nowhere to put it. You're not sure how to invest it due to fear of doing it incorrectly, and you're not sure where to invest it due to fear of losing money. The truth is, if you keep in mind a couple beginner investing principles to start, you'll be just fine.
We'll show you three investment strategies on how to invest $1,000 and three investment types on where you can invest $1,000. With these tips in mind, you'll be able to invest $1,000 successfully with or without prior investing experience.
How to Invest $1,000 Successfully
You shouldn't start until you understand a few basic investment principles that will keep you from making beginner mistakes. These three principles are timeless yet they're as true today as they were decades ago.
The three strategies you should always keep in mind when it comes to successful investing are:
- Long-term investing
- Only buy what you understand
Keep those top of mind and you'll be ahead of 99% of every other investor out there.
What does it mean to diversify? Diversification means to spread your money across different industries, companies and products. In other words, don't put all your eggs in one basket. Why? If you invest in only one company, and that company goes bankrupt, you've just lost all your money!
But if you invest in multiple companies, chances of them all going bankrupt are slim to none. Furthermore, while one company may be performing poorly, another will likely be performing above average to offset your losses.
This is just as true to investing in individual companies as it is to investing in funds, industries and even asset classes.
Invest for The Long Term
Long term investing means that when you purchase shares of a company, you are doing so with the mindset that you are becoming a part owner of that company. You should plan on holding onto your investments for at least 5-10+ years at least.
Why? If you look at the performance of the S&P 500 index alone for the past 20 years, you'll notice days, weeks months and even years where it had negative returns. But over the long term, the trend is always upward. The value of the S&P 500 is much higher than it was 20 years ago.
If you'd bought it in year one and sold it when it had a down year in year 5, you'd lose money. But if you'd bought it in year one and held onto it for 10+ years, you'd have doubled, tripled or even quadrupled your money! The fact is, the market has ups and downs in the short term, but it's always an ongoing upward trend in the long run.
Invest in What You Understand
It's important that you understand the type of company or investment you are putting your money into. If you're investing in individual stocks, there is no use in buying into companies that make semi-conductors if you have no idea what a semi-conductor is let alone how that company makes money.
If you are familiar with technology, invest in tech companies. If you're familiar with finance, invest in financial companies. If you love cars and know how the industry works, invest in your favorite companies in the automotive industry. The same rings true for investment funds. Invest in funds that are comprised of companies within your industry of competence.
Where to Invest $1,000 Successfully
Once you understand how to invest $1,000 without making rookie mistakes, the next question is where to invest your money successfully. If you understand the three principles above, there isn't a real right or wrong answer as to where you should invest your money so long as the company you entrust your money with is reputable, trustworthy and secure.
With that said, here are three types of investments that are great options for investing $1,000 successfully.
Buy Fractional Shares of Your Favorite Companies
In the investing world $1,000 may be only enough to buy a couple shares of certain companies. For example, if you wanted to purchase Apple, you'd have to pay a few hundred bucks per share. Or, if you wanted to invest in Amazon, you'd be short and would miss out on their growth.
However, when you invest your money with banks that offer the ability to buy fractional shares of stock, you can invest in any company you want regardless of the share price. You can buy $5 of Apple or Amazon, you'll just get a fraction of a share rather than a whole share, but you'll still benefit from their growth the same as any other investor.
If you want to buy fractional shares of stock, we recommend doing so with any of the following reputable companies:
- M1 Finance (get $10 free when signing up through our affiliate link)
- Fidelity (yes, Fidelity now allows you to purchase fractional shares!)
Invest in Exchange Traded Funds (ETFs)
An Exchange Traded Fund (ETF) is a basket of companies that trades like a share of stock. When you purchase one share of an ETF, you purchase potentially hundreds of companies together.
There are multiple kinds of ETFs you can purchase. You can buy ETF's that are comprised of the biggest companies of a particular industry, or you can buy ETFs that simply mimic a popular stock market index such as the S&P 500.
ETFs are accessible through your investment brokerage account just like any share of stock is, and generally have a ridiculously small annual expense fee which is usually a fraction of a percent of your balance per year.
Some popular ETFs to consider are (listed by their Ticker Symbol)
- VOO: Vanguard S&P 500 ETF which is comprised of the 500 companies included in the S&P 500 index.
- VTI: Vanguard Total Stock Market ETF which is comprised of thousands of different companies across every industry in the market.
The fund doesn't have to be a Vanguard fund, they can be with any reputable company like Fidelity, iShares, or SPDR (pronounced spider) funds that track the S&P 500 or the Total Stock Market, as the two listed above do.
Invest with A Robo-Advisor
A Robo-Advisor is a modern way of investing that allows you to answer a few quick questions on your comfort with investing and risk, then recommends a customized investment portfolio with its algorithm.
Keep in mind that the algorithms with Robo-Advisors are designed with the help of expert investors, so you're getting expert advice, just automated to you with modern technology.
People choose to use a Robo-Advisor because it's quick, little to no cost, and allows you to get expert advice without the heavy cost of paying for a wealth manager or financial advisor.
A few highly respected Robo-Advisors to consider are:
Perhaps Acorns is the most unique, in that they allow you to link you checking account to your Acorns account and round up your daily purchases to the next whole dollar and invest the spare change automatically. Acorns will even give you $5 just for signing up through our affiliate link!