Want to get started investing, but don’t have thousands of dollars to spare? You aren’t alone. That’s likely why you haven’t started investing yet, or at least why you haven’t diversified your portfolio. Luckily, there are plenty of ways you can start small and grow your investment portfolio over time.
In this article, I’ll break down how to invest $1,000 and discuss the possible yields of each method.
1. Try day-trading
Playing the stock market isn’t for everyone. Still, many newbie investors will run to day-trading when deciding how to invest $1,000. If you understand the market, you can make a decent amount of money this way. (But PLEASE recognize the risks of day-trading first).
According to FINRA, most day traders — those that buy and sell stocks four or more times in a business week — must maintain a minimum of $25,000 in capital.
However, you can still day trade with $1,000. Just make sure not to break the pattern day trader rule. If you don’t buy and sell stocks more than four times within a five-day business period, you’re good.
Robinhood’s commission-free investing is a great tool for day trading; you can quickly research stocks and make trades with just a few taps – trading in real time. With Robinhood, you can customize and build a balanced portfolio by investing in fractional shares – choosing how much you want to invest. Robinhood converts from dollars to parts of a whole share.Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and MoneyUnder30, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. MoneyUnder30 is not a member of FINRA or SIPC.”
2. Invest for retirement
It’s never too early to prepare for retirement. The best way to do it is to invest in a retirement account.
You may have a company-sponsored retirement account, such as a 403(b) or a 401(k). You should contribute to this account each year, especially if your employer matches your personal 401(k) contributions. However, many employers are cutting back on company matching due to the COVID-19 pandemic.
Up to 50% of Americans don’t have an employer-provided retirement account. If you fall into that bucket, then consider setting up an individual retirement account (IRA).
Between the different IRA accounts, a Roth IRA remains the best way for Millennials to save money.
If you invest $1,000 in your Roth IRA to start, it’s hard to say how much you’ll accrue over a year. It depends on the kinds of investments you choose for your account and the market conditions. Consult a financial advisor if you need help choosing your investments.
The average annual return for a Roth IRA falls between 7%-10%. Contribute each year to your Roth IRA, and you’ll see the benefits over time.
One of the best options for retirement investing is J. P. Morgan Self-Directed Investing. Its platform is easy to use, especially for beginners and offers $0 commissions on stocks and ETFs. So, you can build a great starter portfolio for cheap with your $1,000.Disclosure – INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
3. Lend to others
In the olden days, you would have to go to a bank or credit union and get approval for a loan.
But peer-to-peer lending cuts out the middle man, allowing you to send a personal loan directly to someone else, and vice versa.
Since these lending clubs operate online, they can save money on operating costs of traditional lending institutions like banks, passing on those savings to the borrower.
P2P lending can result in a high average annual return for the lender, often between 7%-11%. Some lenders can go even higher into the double digits.
So, if you invest $1,000 and get a 10% return, you will get a net profit of $100, which isn’t a bad return for an hour spent on a lending platform.
Still, it’s a risky venture.
Since you’re making a personal loan directly to the lender, they can default at any time. If that happens, you could lose your entire investment. The FDIC won’t insure your loan in case of default.
A list of some of the best peer-to-peer lending sites, include Lending Club and Prosper. Both LendingClub Bank and Prosper offer excellent options for P2P investing and give you a wide range of options to invest in to help spread out your risk. You can also get started with as little as $25, so your $1,000 will go a long way.
4. Stash it in a high-yield savings
As a kid, you might have stored spare change in a piggy bank and watched your savings pile up over time. The grown-up version of the piggy bank is the high-yield savings account.
The average interest rate for a typical savings account is only 0.09%, which barely covers inflation. But a high-yield savings account can earn you a much higher interest — up to 20 times that same amount. So, it’s a good idea to invest your money in a high-yield savings account.
Like CNBC says, if you deposit $1,000 in a 0.06% interest savings account, you’ll accrue only 60 cents. But if you put that same amount in a high-yield savings account with an annual percentage yield (APY) of at least 1%, you’ll earn $10.
Both of these high-yield savings accounts give you above-average yields on your balance.
Chase Savings℠ is fairly new, and gives you the long-standing expertise and customer service of J.P. Morgan Chase, while CIT Savings Builder is run by CIT Bank, and gives you an excellent yield for depositing as little as $100 per month.Disclaimer – The information about Chase Savings℠ has been collected independently by MoneyUnder30.com. The details have not been reviewed or approved by the bank.
5. Put it into a robo-advisor
A robo-advisor might sound like something out of science-fiction, but it’s pretty standard these days. A robo-advisor serves as a cost-effective alternative to a wealth manager. It can help if you’re a newbie investor and feel overwhelmed looking through thousands of investment options.
These AI-driven advisors ask a few basic questions to determine your investment goals and weigh the risks before putting your money in a low-cost investment portfolio. They continuously revise your portfolio according to their algorithms.
With $1,000, you can invest directly with a robo-advisor like Wealthfront or Betterment, giving you a few ETFs and a ton of diverse exposure to the stock market. Most robo-advisors only require a $500 minimum deposit, so you’ll already have exceeded that amount.
6. Buy one single stock
It used to be too cost-prohibitive to invest in a single stock, as stockbrokers charged hefty commissions for the purchase or sale of any shares.
Recently, $0 commissions have taken hold of the investing industry, making it easier to buy just one stock or a few shares through brokers like E*TRADE, J. P. Morgan Self-Directed Investing, Fidelity, and Robinhood.
As of this writing, $1,000 is probably not enough to buy stock in Amazon, whose share price keeps soaring in the wake of the COVID-19 pandemic. But it is enough to buy at least two shares of other stock you may be a fan of.
E*TRADE is one of the best options for buying individual stocks. It has one of the most advanced platforms for buying and selling stocks, as well as doing robust research on the stocks you want to buy. In addition, they’ve started offering $0 commission on stocks, so you’ll save money when buying.Disclosure – INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
7. Invest in real estate
Acquisition of real estate ranks among the most common investing practices, but what can you practically invest in with only $1,000? A lot of stuff, as it turns out.
Real estate investment trusts (REITs)
Real estate investment trusts or REITs function like stocks, and you can buy them on typical stock exchanges through a brokerage firm.
REITs are also one of the few ways for a new investor with little cash to acquire a stake in the commercial real estate market. Plus, you can buy or sell shares without having to worry about selling any property.
With only $1,000, your best bet is to start with publicly-traded REITs, which require an investment of only a few hundred dollars. Be sure to purchase an Equity REIT as opposed to the more complicated mortgage REIT.
Crowdfunding real estate
Many traditional real estate platforms, such as EquityMultiple, limit entry to accredited investors with a six-figure income and a million-dollar-plus net worth. Equity Multiple, while limited in who they accept as investors, provides multiple investment opportunities for those they do – such as preferred equity and syndicated debt. Historical returns have also been impressive from Equity Multiple.
Fortunately, crowdfunding has kicked open the doors of the real estate market, opening them for any small-time investor. Crowdfunding real estate allows individuals to combine their investments and get paired with available real estate developers.
With $1,000, you meet the minimum requirement to invest in several crowdfunded platforms, such as Fundrise and RealtyMogul.
Fundrise allows you to invest in a handful of different portfolios based on your initial investment amount. Those dollars will be invested in a variety of commercial real estate projects with varying degrees of risk. It’s really an excellent way to get started in real estate with just $1,000.
For accredited investors, RealtyMogul is a great option, but that requires more than $1,000. You can get started as a non-accredited investor with one of two REITs offered by RealtyMogul – both of which give you instant exposure to the real estate market. Like other platforms, you can set up an IRA for retirement or invest in a taxable account.
However, bear in mind that crowdfunding real estate is not for those looking for a quick, easy cash grab. Investors recommend sticking with it for the long haul — at least five years — if you want to see substantial returns. You can’t sell these investments quickly, making them impractical for short-term investments.
8. Open a CD
As a casual investor, consider investing $1,000 in a certificate of deposit, also known as a CD. A CD typically earns higher interest than a regular savings account.
You buy the CD directly from the bank, and you usually only need a minimum deposit of $1,000 to acquire a CD. The CD lasts for a fixed period — anywhere from 28 days to 10 years.
You can’t withdraw your money during this time, though (unless you want to pay a penalty). Instead, the bank pays you a set interest rate for the duration of the CD, which will vary depending on the bank and the deposit amount.
You can get these interest payments by check or automatically reinvest them in the account, also known as compound interest.
9. Buy treasuries
It may seem like a bold move to start investing with U.S. savings bonds. However, security bonds are a reasonably safe way to invest since the securities have the government’s backing. You purchase these fixed-income bonds through the government’s Treasury Direct portal.
These bonds can last as little as 30 days or as long as 30 years. Through the purchase of a savings bond, you’re effectively loaning the government money. When you cash out on this bond, the government pays back your initial investment, plus interest.
Unfortunately, the yield for Treasury bonds has hovered near 0% for a few years now, and these rates have fallen even lower during the COVID-19 pandemic. As of this writing, the daily yield is 0.09% for a one-month bond, rising to 1.29% for a 30-year term.
Unless you’re interested in investing over several years, this probably isn’t a financially profitable option for a $1,000 investment. Today, treasury securities serve more as a place to safely keep your money and diversify your risk rather than a considerable financial investment.
10. Trade options
If you’ve got some financial knowledge and follow the markets daily, then trade options might be the next step for you. You’ll want to use an online trading platform.
Options trading lets you speculate on market conditions with less upfront capital. They give you leverage so that you can get more in return for only a $1,000 investment. However, your potential for financial loss is also much higher.
Trade options also provide flexibility, allowing you to take advantage of changing conditions and make money, whether the market is going up or down. Your potential yield depends on:
- The kind of options you buy.
- Market conditions.
- The stocks in your portfolio.
You can invest in two types of options: call options and put options. These options expire on a specified date.
A call option allows you to purchase the stock at a specified price, but you don’t have to buy if the conditions are not favorable. A put option will enable you to sell the stock at a specified price, but, again, you are not required to sell.
Whew. Well, there you have it. How to invest $1,000.
In the past, you may have delayed investing because you didn’t believe you had enough upfront capital. As you can see, a thousand dollars is more than enough to get you started in a variety of ventures, from trading options to investing in your child’s education.