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How to invest $1,000

You’ve got to start investing somewhere, and $1,000 can go a long way.

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By

Matt Miczulski

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Even if $1,000 doesn’t seem like much, there are plenty of ways to invest that money and establish a fruitful portfolio.

5 best ways to invest $1,000 right now

It’s easy to spend $1,000 in countless ways, but investing your extra money is always a good option. Yes, there are uncertainties with every investment. But investing is one of the best ways to accumulate wealth over the long term.
If you’ve got $1,000 to spend, here are five solid investment ideas to consider right now.

1. Commission-free trading

Why it’s a good option now: Many experts agree that the stock market is healthy, and they see potential for continued growth throughout the remainder of 2021. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index have grown significantly since this time last year, up more than 21%, 26% and 26%, respectively.
In other words, if you’re eager to start trading, now could be a great time to jump in. Plus, many brokers ditched commission fees in the last few years, which were often between $5 to $7 per trade.
After a handful of trades, that $1,000 would be eaten up quickly by fees. But commission-free trading of stocks, ETFs and options are the new normal, so you can invest that $1,000 without having to worry about commissions eating into your returns.
Some brokers that offer commission-free trading include:

What to watch out for: Each broker has a different policy on commission-free trading, where some stocks qualify and others don’t. For instance, TD Ameritrade offers commission-free trading, but it only applies to US exchange-listed stocks, ETFs and options. If you want to trade over-the-counter stocks, expect to pay a $6.95 fee per trade.

2. Consider fractional shares

Why it’s a good option now: Fractional share investing has emerged over the last few years as a popular investing strategy for those new to the stock market. Apps have made it easier than ever to buy a portion of a stock that would otherwise be too expensive, making stocks that trade at hundreds — or even thousands — of dollars accessible to beginner investors. Plus, it allows you to divvy up that $1,000 across a variety of companies and build a diversified portfolio in the process.
Some popular platforms that offer fractional share investing include:

What to watch out for: Not all brokerage firms offer fractional share investing. You’ll also want to make sure the broker you decide to go with doesn’t charge commissions on trades because those costs can add up quickly.

3. Consider crypto

Why it’s a good option now: Cryptocurrency offers investors an interesting — albeit risky — opportunity. The potential for profit is sizable, but so is the risk of loss.
Need proof? Had you invested $1,000 in Bitcoin in March 2020, one year later, that investment would have been worth $4,494.60 — a gain of over 440%.
Now, before you rush out to pump your pocket change into crypto, here’s another scenario for you. Let’s say you invested the $1,000 into Bitcoin in March 2021. By July 2021, only four months later, that $1,000 investment would be worth just $645.70 — a loss of over 35%.
And Bitcoin is largely considered one of the more stable coins on the market.
Some brokers that offer cryptocurrency trading include:

If you’re uncomfortable with the idea of investing in crypto outright but still want to dabble, consider a crypto savings account: an account that lets you invest deposited funds in cryptocurrency coins. The account provider then lends your crypto to borrowers and in exchange, you earn interest.
What to watch out for: Cryptocan be volatile. And a crypto investment should only be considered if you have room in your budget to weather a little instability.

4. Open or contribute to an HSA

Why it’s a good option now: An HSA, or health savings account, is a tax-advantaged account that allows you to make tax-deductible contributions and tax-free withdrawals, so long as you use the money for medical expenses. Unused money and interest are carried over from year to year, and many HSAs allow you to invest some or all of your HSA balance into mutual funds, ETFs and even individual stocks. For 2021, the maximum you can contribute to an HSA is $3,600. As an aside, you may be able to use your HSA for non-medical expenses in retirement.
What to watch out for: You can only contribute to an HSA if you have a qualifying high-deductible health plan (HDHP). For 2021, health plans with a minimum deductible of $1,400 for an individual and $2,800 for a family qualify as an HDHP.

5. Diversify your portfolio with micro real estate investments

Why it’s a good option now: There’s no denying that the real estate market is hot right now. We’re seeing new records throughout the country as home prices continue to climb. So now could be a good time to get started investing in real estate.
With $1,000, perhaps the easiest way to do it is through real estate investing platforms like Fundrise or DiversyFund. Both allow you to invest in real estate investment trusts, which are basically companies that own income-generating real estate. And both have account minimums of just $500.
What to watch out for: Interest rates on mortgages are at the lowest they’ve ever been, but the housing boom could plateau when rates rise again. That doesn’t mean there’s a housing bubble that will burst but rather a boom that will come to an end. So returns on real estate investments could slow down or pull back.

How $1,000 can grow

While it may look like a small start, $1,000 given time can grow into an impressive sum. Here’s a look at how it might grow in three common investment classes, without saving another penny.

$1,000 saved or investedSavings accountBondsStocks
1 year$1,010$1,060$1,100
5 years$1,051$1,338$1,611
10 years$1,105$1,791$2,594
15 years$1,161$2,397$4,177
20 years$1,220$3,207$6,727
25 years$1,282$4,292$10,835
30 years$1,348$5,743$17,449

For this table we assumed:

  • A 1% annual return on a savings account, CD or money market fund — which is optimistic these days.
  • An average 6% return for bonds or bond funds.
  • 10% on the stocks, the market’s long term annual return.

Bond returns vary widely based on bond types, and the stock market has down years while individual stocks can even go to zero. So consider these benchmarks only and consider risk as well as return.

Before you invest

They might not be as exciting as investing in the stock market, but here are a few smart money moves you could make right now with that $1,000 instead of investing it.

  • Make necessary repairs: Take a look around your home and consider any projects you’ve been putting off. Have you been wanting to repaint or upgrade some appliances? Though it’s not enough to make any major renovations, $1,000 can make a dent.
  • Hire a financial coach: If you need help with money, a financial coach or advisor can help you understand the essentials of managing your money. Most financial advisors charge between $150 to $300 an hour or one-time fees of between $1,000 to $3,000 to create a comprehensive financial plan.
  • Buy a life insurance policy: If you don’t get life insurance through work or you’re self-employed, it can be a good idea to consider a life insurance policy. According to Policygenius, a healthy 35-year-old male can expect to pay around $30 a month for a term life insurance policy worth $500,000, while a healthy 35-year-old female with the same terms can expect to pay around $26 per month. If you use that $1,000 to pay your premiums, you’ll have life insurance for the next two to three years.

Alternative investments

Only you can decide where to invest your money, and the options provided above may not be the best places to park your $1,000 – and that’s okay. Here are three alternative investments to consider.

  1. Invest in fine art without buying it: If you’ve always been eager to invest in fine art, platforms like Masterworks and Maecenas allow you to do just that. Both companies offer shares of artwork, and $1,000 is enough to get started.
  2. Invest in yourself: Consider investing your $1,000 in professional development. There are plenty of online courses available to help you build new skills, which, in turn, can lead to a pay raise.
  3. Invest in NFTs. A non-fungible token is a digital asset — typically a piece of art, music file or video game item. They’re highly speculative but gaining popularity. You can invest in NFTs using cryptocurrency on specialized NFT marketplaces, like OpenSea.

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