What financial steps would you take if you had an extra $1,000? Should you stash it in savings, knock out some debt, or try to grow it? While this article zeroes in on eight smart, research-backed ways to invest that money right now, it is important to remember that before investing, you should pay down so-called bad debt and build an emergency savings fund.
Each strategy varies in terms of risk, time horizon, and how it will affect your specific financial goals—but all are geared toward helping you decide which of the eight investment strategies to take. While $1,000 might not seem like a game-changer, starting to invest early is one of the most powerful steps in building long-term wealth. Of course, you can also apply your strategies to any extra disposable cash in excess of $1,000.
Key Takeaways
- You don’t need to have a lot of money to start investing.
- Be sure to prioritize paying off “bad” debt and building up an emergency savings fund before setting money aside for investment.
- A relatively modest $1000 can grow into a substantial amount over time, thanks to compounding interest.
- Investing in yourself and education can increase your income-earning potential, and lead to greater overall wealth.
- Your best investment strategy will be determined by your financial goals, risk tolerance, and time horizon.
Start With a High-Yield Savings Account
A high-yield savings account will allow you to earn a substantially higher interest rate than in a regular savings account. Currently, the best high-yield is 5%, 13 times higher than the Federal Deposit Insurance Corporation’s (FDIC) national average for regular savings accounts.
High-yield accounts are a safe place to put your money because they are FDIC insured up to $250,000. High-yield savings accounts are an ideal vehicle to utilize to build an emergency fund or store money for near-term goals. However, there may be some factors to consider, such as initial deposit requirements, minimum balance requirements, fees, and rules that may restrict access to your money.
Open or Contribute to a Roth IRA
A Roth IRA is a retirement account that offers tax-free growth and withdrawals in retirement, when done properly. That $1,000 can go to work in a Roth IRA, growing through investments like stocks, mutual funds, or exchange-traded funds (ETFs). Since it’s funded with after-tax dollars, your future withdrawals (including the earnings) are free from tax and penalty after five years and once you are at least 59 ½ years old.
Starting early gives you the advantage of compound growth, making this one of the smartest, most tax-efficient ways to build long-term retirement wealth—especially if you’re younger or in a lower tax bracket now than you expect to be in retirement. If you need to take out earnings early, there are several exemptions to the early-withdrawal tax and penalty. Because your contributions are made with after-tax money, they are always accessible without penalty or tax.
Invest in an S&P 500 Index Fund
Using a top online broker to Invest $1,000 in an S&P 500 index ETF such as SPDR S&P 500 ETF Trust (SPY), Vanguard S&P 500 (VOO), and iShares Core S&P 500 (IVV), is a smart way to get broad exposure to about 500 of the largest companies in the U.S., with built-in diversification, historically strong returns, and low fees. It’s one of the easiest ways to build wealth steadily over time, especially if you’re investing for the long haul.
Use a Robo-Advisor for Hands-Off Diversification
If you want a hands-off way to invest, a robo-advisor such as Betterment or Wealthfront can be a smart choice. They use modern portfolio theory to build a diversified mix of investments, tailored to your goals, time frame, and risk tolerance, with automatic rebalancing, low minimums, and emotion-free decision-making.
Buy Fractional Shares of Big Name Stocks
While $1000 may only allow you to buy a few shares of big-name stocks like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT), you can opt to invest in fractional shares without paying the full share price. Brokers such as Fidelity and Interactive Brokers offer fractional share investing to make it easier to invest in high-priced, well-known companies, even if your budget is modest. This makes it easier to diversify your portfolio and put your money to work right away in accord with your investment game plan.
Get a Match in Your 401(k)
If your employer offers a 401(k) plan, you should prioritize contributions to that. Not only will you get an immediate tax benefit because contributions are made with pre-tax dollars in traditional (that is, non-Roth-style) accounts, but odds are that you can also take advantage of “free money” from your employer.
Every employer’s plan is set up differently, so you will need to find out the specifics of the plan you are a part of, but if your employer is one of the 96% that offer matching contributions, you want to maximize that benefit. For example, if your employer matches 50% up to the first 4% you contribute, then aiming to contribute at least 4% of your pay helps you accumulate money quicker than simply investing on your own.
Explore Short-Term Treasury Bills or Bond ETFs
If you’re looking for a lower-risk way to put your $1000 to work, short-term Treasury bills or bond ETFs like iShares Short Treasury Bond (SHV) and SPDR Bloomberg 1-3 Month T-Bill (BIL) are solid options. They offer steady, interest-based returns that are are backed by the U.S. government.
Series I Bonds, also known as I Bonds, are another low-risk option. These relatively low-interest-rate, inflation-protection investments won’t make you rich overnight, but they’re great for preserving cash while still earning a little interest—especially if you are concerned about inflation.
Invest in Yourself: Courses, Certifications, Skills
Investing in yourself is also a great option. Consider taking a course, getting a certification, or learning a new skill to become more marketable. These kinds of investments can really pay off, not just by building your skills, but also by opening doors to better jobs and higher pay.
Several online places, such as Coursera, Udemy, or LinkedIn Learning, offer courses that allow you to learn at your own pace. Investing that $1,000 in yourself could end up being one of the smartest moves you make for your future.
The Bottom Line
Regardless of your experience level, there are several smart ways to put $1,000 to work. Whether investing for retirement, in high-yield savings, fractional shares of top companies, or even investing in your own skills, the key is to take action as soon as possible. Every dollar you invest now has the potential to put you in a better financial position in the future.