Follow this guide for how to invest $1000 for three ways to invest that lower your risk from stocks and bonds
That last thing you want to do after saving up that first $1000 to invest is to lose it! Whether its $100, a $1000 or a million, you worked for it and now you want to see it work for YOU!
You can start investing with as little as $100 on most investing sites but it helps to start with a little more to avoid some of the risks in individual stocks and investments. Investing $1,000 can mean a big difference in being able to get the diversification you need and really start seeing your money grow.
But how should you invest $1,000 and how fast can your earnings pile up in three of my favorite investments?
Before we get into my three favorite ways to invest $1,000, let’s cover how to invest and why it’s just as important as the investments you buy.
- Diversification means buying enough individual stocks or investments so that a big loss in one will not seriously dent your portfolio. Invest $500 in one stock and it accounts for half of your $1,000 portfolio meaning a big loss could really hurt. Invest $100 in something and your portfolio only falls 5% even if it plunges by 50%.
- Investing fees are one of your biggest enemies and will eat away at any return you earn. Buying ten stocks every three months adds up to $400 in annual fees even at the less expensive investing sites. You’ve already lost 40% of your $1,000 investment and you have only just begun! Make deposits into your investing account regularly but wait to invest to save on fees.
- Investing has to be for the long-term, whether you’re investing $100 or $100,000! I’ve worked as an investment analyst for more than a decade and can tell you that even the pros don’t know where stocks are going from month to month. Investing should be like a savings account…one with a really amazing return.
With these three points in mind, it should be clear why you should wait to invest $1,000 rather than jumping into the stock market with $100 or less. Investing $1,000 means you’ll have enough to buy a wider range of investments and can do it all at once rather than several times, racking up those fees.
But the question of what you should invest your $1,000 remains, so…
Here are my three favorite ways to invest $1,000!
Investing $1,000 in Peer Lending
One of my favorite new ways to invest $1,000 is through peer loans on Lending Club. Peer loans offer a lot of the benefits of fixed-income bond investing but pay higher returns and avoid some of the disadvantages of bonds.
Five-year bonds of large corporations pay just 2% annually, that’s just barely above inflation but still might be better than investing in stocks if the market hits a rough patch. Even the safest category of peer loans is paying upwards of 7% annually, and these are people with credit scores approaching 800 FICO.
- Since peer loans are for terms of three to five years, prices don’t fall as much as long-term bonds when interest rates rise
- Investing in peer loans through a retirement account means all the interest you receive is tax free for decades
- Peer loan investments won’t fall with the stock market, making them a good way to lower your risk in a traditional stocks and bonds portfolio
Here’s the deal with investing in peer loans:
You can invest a minimum of $25 in each loan so it’s really not practical to start by investing $100 but investing $1,000 means you can buy up to 40 loans for your portfolio. Each loan will be about 2.5% of the total and won’t cause a steep drop in your investment if it defaults.
I interviewed one peer lending investor that has earned an average of 12% annually since 2009, making a $10,000 profit on his initial investment. He shared his strategy for picking peer loans including which risk categories he chooses and which borrowers he selects.
Open an Account on Lending Club Investing and start investing in peer loans
My Favorite ETF Funds to Invest $1000
Exchange traded funds (ETFs) are like mutual funds except much cheaper to buy and carry a lot of other advantages. These funds trade just like stocks so you can buy them on any investing site and most hold hundreds of individual stocks.
Funds invest across a theme like the broad stock market, dividend stocks or the tech sector. There are hundreds of themes and thousands of ETFs but you really don’t need more than a few.
Why should you care about ETFs?
The advantage of investing in ETFs versus individual stocks is that you get instant diversification across many investments, one of our top 10 investing basics in this article. Through a fund that invests in the technology sector, you’ll get an investment in hundreds of companies from huge players like Apple to small upstarts like MKS Instruments.
I invest in ETFs that focus on sectors and other themes but my favorite ETFs are broader investments that give me access to the whole market or an asset class. These funds help smooth out my investments in individual stocks.
Check out the three ETFs below for your $1,000 investment.
- SPDR S&P 500 (SPY) – This fund holds 500 of the largest companies in America and is the most popular measure of the overall stock market. If it’s true that you can’t beat the market then this is the best way to invest in the market.
- iShares MSCI Emerging Markets (EEM) – This fund invests in 848 stocks of companies based in fast-growing countries like China, India, Brazil and Russia. The investments are riskier than the U.S. market but should provide a higher return over the long-run and really help lower your risk compared to a portfolio of just domestic stocks.
- Vanguard REIT ETF (VNQ) – This fund invests in 150 companies that own real estate and pays a very high 4.2% dividend. Each company invests in hundreds of properties so the entire fund gives you diversification through a huge range of property types and across the United States.
The Best Stocks to Invest $1,000
If you do decide to invest your $1000 in individual stocks rather than an ETF, your best bet is to do it through a Motif to reduce your investment fees. Motif Investing is an investing site that lets you group up to 30 individual stocks or funds and then buy them all with a single $10 commission.
Each time you invest more money, you can buy the whole group for just one commission…that means you’re saving hundreds a year in commissions versus other online investing sites.
I’ve created four funds on Motif that I use for different investing themes. My favorite is my American Future Fund, a group of stocks within three sectors that I believe will benefit from huge drivers over the next 30 years.
My American Future Fund is a group of 10 stocks and four funds with exposure to energy, agriculture and healthcare. Economic and demographic factors are going to be a huge force behind these three sectors over the next several decades and will lift the entire group. Investing broadly across the sector funds means I don’t have to worry about picking stocks. Investing for the long-term theme means I don’t have to worry about what the investment does in any given year.
I started the fund in early February and it’s already earned 15.6%, more than double the return on the stock market over the same period. That’s just the start and it’s easily my favorite way to invest right now. Check out the fund on Motif and create your own fund around your favorite stocks.
The real power of investing isn’t to just invest $1000 and then do nothing. Make investing part of your monthly budget. Investing just $50 a month will be worth more than seven-times the amount of a single $1000 investment over 30 years. Don’t worry about investing every penny you earn, just put in what you can afford and follow the stock market basics to diversify your risk and lower your investing fees.
These are just three of my favorite ways to invest $1000 but you should really hold a range of asset classes including stocks, bonds, real estate and peer loans in your portfolio. Whether you’re investing $100 or $100,000 – don’t worry about beating the market. Invest for the long-term and never take money out of your investments.