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According to a recent Gallup poll, more than half of American adults (58%) invest in the stock market. While the amounts invested vary based on age, income, and other demographic factors, it is clear that Americans appreciate the value of investing – even if they only have a workplace 401(k).
Many options are available if you have a fully-funded emergency fund and $1,000 to spare. However, the plethora of investment opportunities can be overwhelming and confusing.
A Guide to Investing $1,000
Building a Diversified Portfolio through Fractional Share Investing
Risk level: Medium
While investing in individual stocks is always an option, fractional share investing allows you to buy a fraction or “slice” of a stock you want. This strategy allows you to diversify your investments and invest in larger, well-known, unaffordable stocks. For instance, as of this writing, a single share of Amazon (AMZN) trades for over $3,000.
With just $1,000, you could not buy a single share, but fractional share investing lets you invest your $1,000 into a slice of one Amazon stock.
If you only have $100 to start investing, fractional share investing is perfect. However, it is also suitable for investors with $1,000 or $5,000.
How It Works:
Investing in fractional shares is as simple as investing in traditional stocks or ETFs. All you need to do is find a broker that allows fractional share investment research the options, and invest in the fractional share market at your own pace.
Where to Get Started:
Many online brokers offer real-time fractional share investing without charging commissions. Fractional shares can be as small as 1/1,000,000 of a share to spread your $1,000 initial investment across hundreds of different companies.
Who It is Best For:
Fractional share investing is an excellent option for diversifying their portfolio by investing in different companies.
Creating a Mini Property Investment Portfolio
Risk level: Medium
There are many ways to start investing in real estate, but one of the easiest is through Fundrise. With just half the amount required to invest, you can make an initial investment of $500.
Using their starter portfolio, your money will be invested in several different REITs, providing instant diversification. Realty Mogul is another solid option to consider.
How it works:
With Fundrise REITs, you can invest your money in real estate without becoming a landlord. Open an account, transfer some money to start, and select a portfolio that aligns with your risk appetite and goals. Fundrise takes care of real estate management and finding new investments for you. It is worth noting that Fundrise investors earned an average platform return of 22.99% in 2021 (3.49% in 2022 so far). You can check out my 4-year Fundrise returns here.
Where to get started:
If you are looking for a quick and easy way to invest in real estate without managing buildings or facing fees, Fundrise is the ideal option. Learn more about investing with Fundrise.
Who it is best for:
Fundrise is a great investment option for those who want exposure to real estate markets without becoming a landlord or dealing with individual properties.
note :
Investing in real estate always involves risk, so it is essential to understand the potential risks before investing. Research and consult with a financial advisor before making any investment decisions.
Using Dividends to Cover Your Monthly Expenses
Risk level: Low
Wouldn’t it be great if you could get your cellular provider to pay your monthly bill? You could achieve that if you invested $1,000 in a telecommunications stock that pays a high dividend, such as AT&T or Verizon. If you held enough shares, the dividend payments could cover your cell phone bill every month, giving you the impression that you are getting your phone for free. You can apply this technique to other monthly expenses, such as electricity, internet, gas, entertainment, and groceries. Here are some examples of companies whose services you probably use and that offer stocks with dividends.
Open a Roth IRA
Risk level: Varies
A Roth IRA is a type of investment account designed for retirement savings. With a Roth IRA, you invest after-tax dollars, and your money can grow tax-free. Once you reach retirement age, you can withdraw your funds without paying income taxes. For most people, the maximum contribution amount across IRA accounts for 2023 is $6,500. However, individuals ages 50 and older can contribute up to $7,500.
How It Works:
Income caps limit who can contribute to a Roth IRA. Contributions are phased out entirely for single filers who earn more than $153,000 and married couples who earn more than $228,000.
Where to Get Started:
You can open a Roth IRA with any brokerage account offering this type. Some famous brokerage firms that offer Roth IRAs include Betterment, Stash, M1 Finance, and TD Ameritrade.
Who It is Best For:
Investing in a Roth IRA is suitable for anyone saving for retirement or a future goal. This type of account is also ideal for anyone who wants to set up a tax-free income source for their retirement years. To learn more about the best investments for a Roth IRA, click here.
Creating a Robust Emergency Fund
Risk level: Low
If you have $1,000 and cannot afford to lose any of it while earning some interest, then a high-yield savings account is the ideal choice. These accounts offer better interest rates compared to traditional brick-and-mortar banks.
How It Works:
Although these accounts do not earn significant interest, they are FDIC-
Creating a Low-Cost ETF Portfolio
Risk level: Varies
Exchange-traded funds (ETFs) have revolutionized portfolio diversification. ETFs are akin to mutual funds in the sense that they enable one to purchase multiple stocks in a single investment.
How It Works:
ETFs simplify the investment process by allowing you to purchase a variety of stocks and other securities in a single transaction. Most major brokerage firms offer ETFs with low or no investment fees, making them an affordable investment option.
Where to Get Started:
When it comes to purchasing ETFs, M1 Finance is one of the best investment platforms available. Offering over 1300 different ETFs that can be traded for free, M1 Finance is a great deal.
Who It is Best For:
Investing in ETFs can be advantageous for any investor. It is especially useful for investors with $1,000 to invest, as ETFs allow for greater diversification than individual stocks.
insured, which means there is no chance of losing your money. You can also withdraw your cash anytime you need it.
Where to Get Started:
The UFB Direct Rewards Savings is one of the best options for high-yield savings accounts. You can get the highest rate with no minimum deposit and no monthly maintenance fees.
Who It is Best For:
This account is a good choice for anyone who has $1,000 to invest but may need their money in the short term. Additionally, it is ideal for those who need to have some emergency savings in the bank.
Allowing a Robo-Advisor to Invest for You
Risk levels: Vary
Robo-advisors are online platforms that use advanced algorithms to make investment decisions on behalf of their users. The popularity of robo-advisors could result in the management of as much as $16 trillion in assets by 2025, according to Deloitte.
How they work:
Upon opening an account with a robo-advisor, users typically answer questions about their finances and goals. The robo-advisor then uses algorithms to find investment options that fit the user’s risk tolerance and investment timeline.
Where to start:
Betterment is my top choice for robo-advisors due to their user-friendly interface, low fees, and suite of financial products. Opening an account with Betterment requires no minimum balance.
Who it is best for:
Robo-advisors are most useful for investors who want guidance on selecting investments for their portfolio.
Pay Off Debt
Investing your money to pay off debt may not be the most obvious choice, but the numbers do not lie. Americans’ debt burden continues to grow annually, and while your mortgage rate may be low and some of your student loans may have been forgiven, high-interest debt is a major obstacle to accumulating wealth.
Although $1,000 may not appear to make a significant dent in your overall debt load, it is a crucial step in achieving financial freedom. I cannot describe how it felt to finally pay off the student loans and credit card debt I had recklessly accumulated during school.
I cannot put a price on the sense of liberation I experienced.
By taking $1,000 and putting it toward your debt, you are one step closer to feeling the thrill of being debt-free.
Your Investment Style
Before investing any sum, take some time to consider your investing style. You’ll need to think about:
- Your investment timeline
- Whether you require easy access to your money
- Your appetite for risk
- Your interest in learning about investing
If you’d rather have someone else do the work for you, then a robo-advisor like Betterment might be the way to go. Betterment charges low fees and uses technology to make smart investment decisions on your behalf. You can set up a Betterment account, fund it regularly, and mostly leave it alone. This is a good option if you’d rather spend your time and energy on your career or hobbies.
However, some people prefer the DIY option. This can be a good choice if you want to learn more about investing by being hands-on, so you can become a better investor over time. It also makes sense if you want to understand the inner workings of common investment strategies. If you think you would be better off as a DIY investor, then investing in ETFs with Fundrise might be a better option.