You’ve finally done it. You’ve scraped together $1,000 and you’re ready to start investing.
But there’s just one problem — you don’t know what to do with your money. You’ve reached a breaking point where you’re just like…
Real talk: investing that $1,000 is one of the smartest things you can do for your financial future. But if you’ve never done it before, it can feel intimidating. What exactly is the best way to invest $1,000?
To help ease your mind (and help you take action), we’ve compiled a list of 10 smart ways to invest $1,000 right now.
1. Tackle high-interest debt
Who should do it: Anyone with credit card debt — or debts with interest rates above 8%.
Why it’s important: High-interest debt is like an anchor that weighs you down financially. Warren Buffett has warned against carrying a credit card balance time and time again. This is because the interest you’re paying on that debt is typically way higher than the interest you’d earn in the stock market. The Oracle of Omaha even admits paying off this type of debt is “…going to be way better than any investment idea I’ve got.” So the sooner you can get rid of it, the better. Capeesh?!
How to do it: Choose which high-interest debt you want to pay down. Log into that account. Then, schedule a one-time payment of $1,000. Give yourself a pat on the back because you’re $1,000 less in the hole.
- You’re guaranteed to save money on interest payments.
- You can use the money you save in future months to invest in other areas.
- Doesn’t actually earn you money — it just saves you money you would’ve otherwise paid in interest.
- Not technically “investing”— although it’s a smart financial move.
2. Start an emergency fund
Who should do it: Literally everyone.
Why it’s important: An emergency fund is like a safety net for your finances. It’s there to help you cover unexpected costs — like a medical bill, car repair, or job loss. And without one, you might have to resort to using credit cards or high-interest loans to cover the cost. So if you don’t already have one, consider using your $1,000 to build up your emergency fund — that way you’re prepared for anything life throws your way.
How to do it: Open a high-yield savings account if you don’t have one yet. (One of my favorites is the Discover Online Savings Account.) Then, transfer your $1,000 into the account. Take a deep breath *inhale* because you’ve got a $1,000 buffer between you and the unknown. *exhale*
- Great way to prepare for the unexpected.
- The money is there if you ever need it.
- Low-risk investment.
- You might not earn as much interest on your investment as you would in the stock market.
3. Invest in Y-O-U!
Who should do it: Anyone who’s unhappy with their current job situation.
Why it’s important: One of the best investments you can make is in yourself — specifically, in your education and career growth. So it could be a good idea to use your $1,000 to invest in courses or training that will help you further your career. Alternatively, if there’s a business you’ve always wanted to start, use your investment as seed money to get the ball rolling.
How to do it: There are a million different ways to invest in yourself, so there’s no one-size-fits-all answer here. But start by thinking about where you want to be in your career two years from now. Then, figure out what skills you need to gain to fill in the gap and make it your reality.
- Can have a big impact on your overall happiness, career, and earnings potential.
- You’re the only one who can make the investment.
- Doesn’t earn you any money directly — but can pay off in the long run.
Who should do it: Anyone who wants to invest in individual stocks.
Why it’s important: When you invest in fractional shares, you’re able to own a piece of your favorite companies without having to shell out a ton of cash. This is because you’re only buying a small portion of one share, rather than a whole share. So if a company’s shares are trading at $100 each, you could buy 0.1 shares for just $10. Not only does this make investing more accessible, but it also allows you to diversify your portfolio without breaking the bank.
How to do it: Open an account with of of the online stock brokers like Public (which support fractional share investing). Then, search for the stocks you want to buy inside the app.
- Allows you to invest in companies you love without spending a lot of money.
- You can build a well-rounded portfolio without breaking the bank.
- Need to buy shares from lots of different companies to have a fully diversified investment portfolio.
- Building a diversified portfolio with fractional shares alone takes a lot of time and effort.
The Social platform for fractional investing – check out our Public app review.
5. Open an account with a robo-advisor
Who should do it: Anyone who wants a diversified investment portfolio without having to put in any effort.
Why it’s important: Robo advisors are computer algorithms that automatically invest your money for you, based on your goals and risk tolerance. So if you’re interested in social investing, for example, a robo-advisor may have a pre-built portfolio for that. Or, if you’re interested in retiring early or buying a home, it can create your portfolio based on those goals, too.
How to do it: There are a number of different robo advisors to choose from, but some of my favorites are Wealthfront and Acorns. Once you create your account, you’ll answer some questions about your investment goals and risk tolerance. Then, your robo-advisor will automatically invest your money for you and manage your portfolio on an ongoing basis.
- Makes it easy to start investing.
- Takes the guesswork out of building a diversified portfolio.
- Can customize your portfolio to target social investing or anything else that aligns with your values.
- You’ll likely pay higher fees than if you were to invest on your own.
- You won’t have as much control over your investments.
6. Invest in index funds, mutual funds or ETFs
Who should do it: Long-term investors who want a hands-off way of investing in the stock market.
Why it’s important: Index funds, mutual funds, and exchange traded funds (ETFs) are collections of investments that often track a specific market index, like the S&P 500. They’re both excellent choices for beginner investors because they offer instant diversification across a bunch of different stocks, which can help protect you from losses if any one stock takes a nosedive.
How to do it: You can invest in index funds, mutual funds, or ETFs through a brokerage account. If you don’t already have one, check out our article on the best online brokerage accounts. Then, deposit your $1,000 into the account and begin investing.
- Hands-off investment.
- Ideal for long-term investors.
- Can be a good way to diversify your portfolio.
- Fees associated with some funds can eat into your returns.
7. Open a traditional or Roth IRA
Who should do it: Anyone who wants to invest $1,000 for retirement.
Why it’s important: Both traditional and Roth IRAs offer tax benefits that can help you save for retirement. With a traditional IRA, you get a tax deduction upfront, in the year you fund your account but owe taxes on your withdrawals retirements. With a Roth IRA, you fund your account with after tax dollars (meaning no tax break now), but the money will grow tax free and you won’t owe income taxes in retirement. Either way, an IRA is a great way to invest 1,000 because you can get started saving for retirement with relatively little money.
How to do it: Decide if you want a traditional IRA or Roth IRA. Open your new account with a broker like Wealthfront. Once you deposit your $1,000, don’t forget to actually invest the money! Your investment options include anything you could invest in outside of a retirement account.
- Great way to save for retirement.
- Very easy to open an account and get going.
- Can choose to take a tax benefits now (traditional IRA) or in retirement (Roth IRA).
- Roth IRAs have income limits.
- IRAs have yearly contribution limits set by the IRS.
- Can’t access funds until age 59½.
Read about my experience using Wealthfront – check out our full review on Wealthfront.
8. Boost your 401(k) contributions
Who should do it: Anyone who has a 401(k) through their employer and wants to save for retirement.
Why it’s important: A 401(k) is a retirement savings account that’s offered by some employers. It’s a great way to save for retirement because the money you contribute is automatically deducted from your paycheck — so you don’t have to think about it. And many employers offer a match, which is essentially free money.
How to do it: Because 401(k) contributions come from your paycheck, you must use a workaround to invest your $1,000. Here’s how it works: Log into your 401(k) account and temporarily increase your contribution limit. Then, supplement the gap in your paycheck with the $1,000 you have on hand. Once you’ve contributed an extra $1,000 to your 401(k), log back into your account and lower your contribution limit.
- The money is automatically deducted from your paycheck, so you don’t have to think about it.
- Many employers offer a match, which is essentially free money.
- Requires a workaround because 401(k) contributions must come from your paycheck.
9. Build a CD ladder
Who should do it: Anyone who will need their investment within the next five years — or anyone who wants a “safe” way to invest outside of the stock market.
Why it’s important: A CD ladder spreads your money out over multiple certificates of deposit (CDs) with different maturity dates, so every few months, one of your CDs “matures” and you can withdraw the money. It’s a good way to earn a higher interest rate than you would with a savings account, without having to worry about market fluctuations.
How to do it: You’ll need to open a CD account with a bank or credit union. Once you’ve done that, you can ladder your CDs by opening multiple CDs with different maturity dates. For example, you could open a 6-month CD, a 12-month CD, and an 18-month CD.
Once each CD matures, you can withdraw the money, reinvest it in a new CD, or use it for other purposes — like investing in the stock market.
- Earns a higher interest rate than a savings account.
- No risk of losing money due to market fluctuations.
- You have to pay a penalty if you withdraw your money before the CD matures.
- Returns may be lower than if you invested in the stock market.
10. Invest in a 529 plan
Who should do it: Parents who want to save for their children’s education.
Why it’s important: A 529 plan is a tax-advantaged savings account that can be used to cover the cost of college. And unlike other investment accounts, the money in a 529 plan can be withdrawn tax- and penalty-free as long as it’s used for qualified education expenses.
How to do it: Open a 529 plan through a state-sponsored program or a financial institution like Vanguard. Then, deposit your $1,000 into the account.
- The money can be used tax- and penalty-free for qualified education expenses.
- You have a lot of control over how the money is invested.
- The money has to be used for education expenses — withdrawing it for other purposes will result in taxes and penalties.
- May be better ways to save for your kids’ future.
These are just a few ways to invest $1,000. Use this list as inspiration for how you can make the most out a thousand dollars right now. And when you’re ready to invest again, keep these tips in mind!