How to Invest $1,000 Dollars

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Contributor, Benzinga
July 6, 2023

If you’re ready to dip into the field of investing, investing $1,000 can be a great way to start building wealth over time. Investing for wealth is a long-term strategy where compound interest on investment products offers the greatest rewards after 20 years or more. While investing $1,000 might not bring wealth immediately, Benzinga reviews different strategies for how to invest $1,000 dollars to create long-term wealth. 

Is $1,000 Enough to Start Investing?

Yes, $1,000 is more than enough to start investing. In fact, you could even start investing with $100. How much you start with is not important; what’s important is that you start and continue to invent regularly to see long-term returns. How fast you will see returns depends on what you invest in. 

How to invest $1,000 dollars and make money looks different for each person. High-risk investments might offer larger, fast returns, but they come with the risk of losing everything. A diversified investment strategy aiming at long-term wealth is usually a more reliable wealth-building plan. This article covers ways you can invest your first $1,000 and continue to invest on a regular basis. 

How to Invest $1,000: 10 Ways and Tips

Here are some investing fundamentals to guide wealth-building. 

With these principles, you can invest $1,000 in a few options below. While some of these options might not be the most lucrative for immediate gain, these investments can bring long-term financial stability. 

  1. Start with Low-Cost Index Funds or ETFs

For beginner and experienced investors, low-cost index funds or exchange-traded funds (ETFs) are often recommended. These funds pool money from multiple investors to invest in a broad range of assets, providing instant diversification. Look for funds with low expense ratios and a track record of consistent performance. Many of these funds track major indices, like the S&P 500, which has shown historical returns of over 11% over the last 50 years. 

  1. Open an IRA

An individual retirement account (IRA) is a tax-advantaged account that allows you to optimize investment returns. You could open a traditional IRA, a Roth IRA or both. With a traditional IRA, you’ll receive a tax deduction on all deposits and only pay taxes when you withdraw funds. With a Roth IRA, you’ll pay taxes upfront, but your money grows tax-free. 

In either case, after depositing funds into an IRA, you should invest IRA funds in an indexed fund or other investments to maximize tax-free wealth. 

  1. Deposit Towards Your 401(k) or Another Retirement Account

If you have a 401(k) with employer match, invest here first to maximize your employer’s free matching funds. For example, if your employer will match up to $5,000 per year, aim to put this amount into your 401(k) so that you effectively add $10,000 a year to your retirement account with the employer match. Like a traditional IRA, a 401(k) offers tax-deferred investment growth. 

  1. Consider Alternative Investment Asset Classes

Alternative investment classes like real estate or real estate investment trusts (REITs), vineyards, cryptocurrency or venture capital, offer opportunities for diversification and potentially higher returns. Alternative investment classes should be balanced with other investment opportunities as a small percentage of your total investment portfolio. 

  1. Buy Treasury Bills

Treasury bills are a low-risk investment product issued by the U.S. government. Note that the minimum amount you can purchase of a Treasury Bill is $100. Additional amounts must be in multiples of $100. Treasury bill terms range from four weeks to 52 weeks.

  1. High-Yield Savings Account

With a high-yield savings account, you will get access to your money faster than with some other methods, and over the years, these types of accounts offer stable returns and the power of compound interest. High-yield savings accounts range from 3% to 5% APY. High-yield savings accounts are an excellent place to save an emergency fund or to save up for short-term savings goals. 

  1. Invest in Money Market Funds

Money market funds are useful for short-term gain but don’t have that much long-term potential. If you’re wondering how to invest $1,000 dollars short term, money market funds might be the answer. 

Money market funds are mutual funds that invest in highly liquid, near-term investments that aim to offer investors high liquidity and low risk. Money market investments can include instruments including cash, cash equivalent securities and high credit rating debt-based securities with short-term maturities, such as U.S. Treasuries. 

  1. Invest in Stocks

How to invest $1,000 dollars in stocks requires research and planning. When investing in multiple stocks, it’s important to get partial shares in multiple stocks and balance stock investments with other low-risk investments like bonds or Treasury bills. Research stocks and understand financial strengths, historical performance and innovations for potential growth. Get a step-by-step guide to investing in stocks from Benzinga. 

  1. Use a Robo-Advisor to Invest $1,000 for You

A robo advisor, typically offered online, automates investment portfolio management. Most robo-advisors have low or no minimum investment. Typically, with a robo-advisor, you’ll answer some questions, and the robo-advisor will choose a basket of funds or ETFs tailored to your long-term goals and risk tolerance.

Management fees for robo advisors are usually less than 0.3% per year, or about $0.30 for $1,000 invested.

  1. Invest in Mutual Funds

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds or other assets. Some mutual funds have minimum investment requirements, so make sure to check if your $1,000 is sufficient. Look for funds with a solid track record, low fees and a reputable fund manager.

  1. Start a Passive Income Business

Passive income businesses allow you to earn more without working day-to-day on the business. Examples of passive businesses to start with $1,000 include:

  • Invest in other businesses
  • Rent out unused space in your home or office
  • Create a job board
  • Create no-code apps
  • Write a digital guide
  • Earn royalties through inventions, music or books
  • Invest in vending machines
  • Build and sell spreadsheets
  • Create a print-on-demand store
  • Sell digital products
  • Rent out your car
  • Lend money to peers
  • Create online courses
  • Become a blogger and earn passive income through ads
  • Sell stock photos online

Other Ways to Invest $1,000

While investing $1,000 can lead to long-term wealth, there are other financial goals to consider with an extra $1,000. These include:

Create an Emergency Fund

Before considering investments, ensure you have a financial safety net in place. Set aside some money in a liquid and easily accessible savings account to cover unexpected expenses or emergencies. A high-yield savings account is the best vehicle for an emergency fund as you’ll benefit from higher interest rates. 

Pay Off High-Interest Debt

If you have outstanding debts with high-interest rates, it's generally a good idea to pay them off before investing. The interest saved by paying off debt can often outweigh potential investment returns. Start by paying off all credit card debt. 

Education

While investing in your education may be considered an alternative approach, learning a new skill can lead to a promotion or job opportunities with an increased salary. Investing in yourself can lead to strong long-term financial returns. 

How to Invest $1,000 Dollars: Final Thoughts

The best investment strategies include a diversified, risk-balanced approach. The strategy to earn more isn’t a get-rich-quick scheme. Instead, it involves researching investment options or choosing index-tracking funds to buy and hold for the long term. If you put $1,000 in an index-tracking fund returning an average 11% APY, it would be worth over $8,000 in 20 years and over $65,000 in 40 years without additional contributions. 

However, remember that any investment involves risk; do proper research to balance those risks with returns. With research and planning, the first $1,000 (and additional investments) could grow to millions in the years to come.

Frequently Asked Questions 

Q

Is it worth hiring a financial advisor for investing $1,000?

A

Rather than hiring a financial advisor, you can consider a mutual fund, ETF or other diversified investment vehicle for the first $1,000 you invest. Many financial advisors will only work with clients investing substantially more, usually $50,000 to $100,000 or more. 

Q

What are some options for investing $1,000?

A

Options for investing $1,000 include putting the funds in an IRA, 401(k) or brokerage account. Consider investing in indexed funds, mutual funds or ETFs with a diversified portfolio. 

Q

Is it risky to invest $1000?

A

Most investments carry some degree of risk, but a balanced risk portfolio should lead to strong returns and long-term financial growth. 

About Alison Plaut

Alison Plaut is a personal finance and investing writer with a sustainable MBA, passionate about helping people learn more about sustainable investing and long-term wealth building for financial freedom. She has more than 17 years of writing experience, focused on investments, business, personal finance, and real estate. Her work has been published in The Motley Fool, MoneyLion, and regularly appears on Benzinga.