Investing can be a little nerve-wracking, especially when you haven’t done it before. In the back of your mind, you’re always thinking about the worst-case scenario and what will happen if you lose everything you invested. Luckily, there are (nearly) guaranteed investments you can make with a thousand dollars.
Further, investments can also pay off as well, and you could be missing out on something if you allow fear to prevent you from making the leap into the investment arena.
Sometimes, the key is starting out with something that carries little risk. That way, you can slowly grow more comfortable with investing.
With that in mind, here are some foolproof ways to invest $1,000 while you get some firsthand experience making investments.
Mutual Funds
Investing in mutual funds is usually a low-risk and hands-off approach to investing. Essentially, it involves multiple investors pooling their money together and investing in a variety of stocks and bonds. You can be as active or passive as you want to be when it comes to managing mutual funds, so it’s not something you’ll have to monitor on a daily basis. Investing in index mutual funds also tends to be relatively cheap, especially if you can find a no-load fund. This means that when you sell your investment and look to collect, you won’t have to pay a commission.
One of the caveats with metal funds is that they can sometimes have high minimums, so $1,000 isn’t going to be enough with some companies. However, if you do a little research, you should be able to find a company that has a minimum under $1,000 and get in on the mutual funds game.
Robo-Advisors
If you’re looking to do some 21st-century style investing, consider a robo-advisor. Sadly, these aren’t actual robots that know everything there is to know about investing. Rather, they are just software programs designed to manage your investment portfolio based on the instructions you provide.
After signing up with a company that has a robo-advisor, you’ll usually fill out a questionnaire to determine an investment strategy based on how much money you want to invest and how much risk you’re willing to take. In other words, if you only have $1,000 or less to invest and want to play it safe, a robo-advisor can find a portfolio that fits your needs.
Once you set up your profile and investment strategy, the robo-advisor starts investing based on your specific parameters. Then, it continues trading securities based on changes in the market and any returns you receive from your investment. However, the strategy and parameters you set are always followed.
High fees are a potential downside of using a robo-advisor. But if you have some semblance of an investment strategy in mind, they can be cheaper than hiring a financial advisor. The robo-advisor also does most of the hard work for you. Assuming you trust the technology, you can take a step back and monitor your investments without getting too hands-on.
Target-Date Funds
Target-date funds can be another good option for investing newbies who want a safe and passive method of investing a little bit of money. They are essentially mutual funds that come with an asset-allocation goal. There is both a specific goal and a specific deadline at the time of investment. For example, an investor may have a five-year plan for their money or they may want the deadline for their investment to line up with their retirement plans.
Between the time of investment and the future deadline, a portfolio manager will handle any and all adjustments to the target-date funds. This means you don’t have to obsess over how things are going or take it upon yourself to make changes. In fact, you won’t be able to alter your portfolio until the pre-determined deadline, which isn’t usually a problem unless your financial situation changes and your risk tolerance changes along with it. But as long as that doesn’t happen, target-date funds are usually a foolproof way to invest money.
Also, the key is finding a fund that doesn’t charge high fees; otherwise, your $1,000 investment may not add up to much at the end of the day once expenses have been deducted.
Start a Roth IRA
If you don’t have a Roth IRA already, starting one with $1,000 isn’t a bad idea. If your income is too high, you may not be eligible. But unless you make well over $100,000 per year, you don’t have to worry too much about eligibility. The downside of a Roth IRA is that contributions are not tax-deductible, which is one way this differs from a traditional IRA.
However, after you retire, all of your withdrawals are tax-free, which is where a Roth IRA differs from a traditional IRA in a good way.
Further, there are a number of other benefits to a Roth IRA if you use it the right way, including passing money to your heirs, or using it to help pay for qualified college expenses.
Lastly, there are plenty of online brokers that will allow you to open a Roth IRA with just $1,000 as a starting point.
Peer-to-Peer Lending
Another great 21st-century way to invest is with peer-to-peer lending, which can all be done online. Basically, someone is looking to take out a loan, and you front them the money. They then pay you back the loan with interest.
There are several peer-to-peer platforms online that you can visit as a potential lender. For some, you can choose to invest automatically without necessarily knowing where your money will go. This makes everything simple and easy for you. The other option involves considering various users on the platform who are looking for someone to give them a loan. This is a little more hands-on, but it also means you’ll know more about potential borrowers, allowing you to choose one who’s seeking a loan for a worthwhile reason.
Of course, some people on these sites will be seeking more than $1,000, and will, therefore, be more risky investments than others. But in general, you should be able to find a borrower that’s a good fit for you and a wise investment.
Pay Down Your Debt
Technically, this isn’t the same as investing per se. But if you have $1,000 set aside or received some kind of bonus or inheritance, paying down debt can have a similar effect to investing that money.
In fact, freeing yourself of debt can be more profitable than making a low-risk investment.
Essentially, paying down any debts you have makes you money in the sense that it reduces the amount of interest you have to pay in the long run. If you have a mortgage, an auto loan, or credit card debt, a one-time payment of $1,000 can eliminate a lot of future interest. Also, it’s probably a good idea to pay off as much debt as possible before making investments in other areas, especially if you have a monthly payment that’s accompanied by a high-interest rate.
Once you eliminate a debt that has a high-interest rate, you’ll be amazed at how much more cash you have in your pocket. Before you know it, you’ll have another $1,000 to invest in any of the above-mentioned strategies.