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If you want to build your fortune, investing can be one of the best ways to do so. While starting with $1,000 may not seem like much in the grand scheme of things, you can grow your money over time and create a better financial future for yourself and your loved ones. In fact, it has never been cheaper or easier to be a new investor, and there are many great ways to get started.
With some of the best ways to invest $1,000, you can grow your bankroll quickly. For example, you can earn a 50 percent return on your money almost immediately through special incentives and still be able to invest in high-yield assets.
Here’s how you can invest $1,000 and start growing your money today.
1. Buy an S&P 500 index fund
At the top of the list is buying an index fund based on the Standard & Poor’s 500 index, a collection of about 500 of America’s most successful companies. The index has returned an average of about 10 percent over time, allowing you to double your money in just over seven years.
It’s a good choice for new investors because it offers instant diversification (which means less risk) and you’ll own some of the best companies in the world. In fact, legendary investor Warren Buffett suggests that most investors would do best to buy and hold an S&P 500 fund.
2. Buy partial shares in 5 stocks
If you want to add some spice to your portfolio and have a longer investment horizon, buy a collection of five stocks you’ve researched. However, you need to understand what you are investing in or you may be better off choosing an S&P 500 index fund. Your collection of five stocks will also likely be a lot more volatile than an index fund, but that’s part of the price of investing in individual stocks.
You don’t even have to worry about having enough money to buy full shares of each stock if you go with one of the best fractional share brokers. And take a look at the best broker bonuses for new money, because you might be able to get something extra.
3. Put it in an IRA
If you’re wondering how to invest $1,000, putting your money in a retirement account offers one of the highest potential returns. You can opt for a workplace retirement account or open an IRA yourself with an online broker.
There are two types of IRAs to choose from:
- Traditional IRA: With a traditional IRA, you can deduct any income taxes you would otherwise pay on that $1,000, if you meet the income limits. Moreover, you can defer taxes on your profits for decades.
- Roth IRA: With a Roth IRA, you won’t receive a tax benefit on your contributions, but your money will still grow tax-deferred. The best part? You can withdraw this money tax-free when you retire.
A few bonuses can also sweeten things up. You can combine this strategy with an account opening bonus mentioned above.
You may also be able to take advantage of the little-known Saver’s Credit, which offers a tax break of up to 50 percent, if you earn less than $43,500 (in 2023) and file your taxes jointly with your spouse or $21,750 as an individual. . If you earn above these levels, you may still qualify for 10 or 20 percent college credits, depending on your income.
That’s a huge return with no risk to you – and it’s among the best and easiest returns you can find.
4. Get a match in your 401(k)
If you have an employer-sponsored retirement account, such as a 401(k) or 403(b), check to see if your employer will match the contributions you make to the account. For example, some companies will match 50 percent of your contributions up to a maximum of 4 percent of your salary. So you can put in 8 percent of your salary and the company immediately returns four percent. This “free money” is some of the easiest money you will ever make, so it makes sense to do it.
To use this strategy, you don’t simply deposit money into an account as you would with other strategies here. Instead, you should defer the money from your paycheck. As an extra bonus, you can also benefit from the Savings Credit here. Depending on your income, it is possible to achieve a return of 100 percent without any risk.
5. Let a robo-advisor invest for you
Are you worried about investing your money yourself? You can let a robo-advisor do all the heavy lifting for you. The robo-advisor can select a portfolio based on your risk tolerance and when you need the money, using the same principles a human advisor would use.
The best robo-advisors also offer calculators and other tools to help you understand how quickly your money can grow, and they offer solid cash management accounts with a ton of features. Most accounts let you get started without any money, and it only takes a few minutes to open one.
6. Pay off your credit card or other loan
Of all the investments on this list, the one with the absolute safest returns will pay off your debt, especially if it’s high-interest credit card debt. If you pay 25 or even 30 percent on your cards, that’s money that could otherwise go into your pocket. In fact, it makes sense to prioritize paying off as much of that high-interest debt as possible before investing.
7. Go super safe with a high-yield savings account
If you need access to your money in a few years, you don’t want to tie it up in a large investment like stocks, which can drop significantly in value just when you need the money. Instead, choose a super-safe option, such as a high-yield savings account. These accounts offer some of the highest returns in years, and it’s easy to find the highest returns in the country.
Most online banks offer a high-yield savings account, and you can access your money immediately when you need it.
8. Build a passive business
Yes, even with $1,000 you might be able to get started with a passive business, especially if you put in a lot of the “sweat equity” (i.e. labor) to get it going. Find a niche you love and then set up a website or create a course on a topic where you are the subject matter expert. The capital requirements of many passive companies can be low if you work on them in advance.
You have many options for a passive business, such as providing microloans through a crowdfunding platform or even investing in real estate.
9. Open a 529 account
If you or a loved one goes to college someday, putting your money in a 529 account can help it grow while making future education costs more affordable. Any money withdrawn from the account and used for qualified education expenses is tax free. That’s an attractive prospect for parents who may have to foot the bill for their child’s education.
Additionally, the SECURE Act 2.0 of 2023 makes contributing to a 529 account less prohibitive. Beneficiaries of a 529 plan now have the option to convert a lifetime total of $35,000 from a 529 plan to a Roth IRA without having to pay taxes or penalties, as long as the account was held at least 15 years prior to conversion is open.
In short
If you are looking for the best way to invest money, there are several options to choose from. Investing $1,000 may be just the start of your investing career, but make it count by taking the time to understand the options available and how to really make that money work for you. You can grow your account over time and build real wealth for yourself and your family.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
