How to Invest your First $1k

Investing your first $1,000 well can be the first step to future financial success. Follow our guide to learn the best ways to get started.

How to Invest 1,000
If you’ve just gotten your first $1,000 that’s free to invest, you might be freaking out a little bit. What are you going to do with that money? And how are you going to keep it growing so that you can continue to invest more for your future?

Well, $1,000 is a great start, but it’s not a ton of money. That means you can’t spread it out into too many different options. But you can prioritize the best ways to invest that thousand bucks. Here are 9 of the best ways to invest your first $1,000.

Investment TypeBest For
Paying off debtThose with high-interest debt
High-yield savings accountEmergency fund
Tax-advantaged accountBeginner investing
StocksHaving control over where your money goes
Real estateAlternative investment
Peer-to-peer lendingHigh-risk/high-reward
CDThose who don't need the money right away
Treasury securitySafe investment to balance risk

1. Pay Off Debt

First, if you have high-interest debt hanging around, you’re likely best off putting your money towards that. If you’re paying 15% or more interest, you won’t likely be able to put your money towards an investment that out-earns that. So it’s best to pay off that debt. The general rule of thumb here is that you first put enough money into an employer-sponsored account to get any matching option available. Then you put your money towards high-interest debt until that’s paid off. Once that’s done, you can move on to some of these other options.

2. Use a High-Yield Savings Account

If you don’t have any money saved for an emergency yet, put your $1,000 into a high-yield savings account to be used for emergencies. This keeps you from going into more debt if an emergency does arise, so it’s definitely a good idea. Look for a savings account that has little to no ongoing fees and as high an APY as possible. Some great options include CIT Bank, Ally Bank, and Capital One 360. Just do your research to find the best deal when you open your account.

Deal of the Day: Barclays Bank is offering a fantastic 1.90% APY for their Online Savings Account. There are no monthly maintenance fees and there is no minimum deposit to open. FDIC Insured..


Watch: A 7-Step Guide to Building Your Ultimate Emergency Fund

3. Put It Into a Tax-Advantaged Account

If you don’t have an employer-sponsored retirement plan, or if you aren’t able to put this $1,000 in there, you should consider making your investment through an IRA. Tax-advantaged investment accounts like these can really boost that amount and grow your money over time. Luckily, some of the options below, including some robo advisors, allow you to invest through an IRA, so you can get both good returns on your investment and tax advantages.

Related: Blooom Review – Finally, a Robo-Advisor for Your 401(k)

4. Try Your Hand At Investing In Stocks

You definitely don’t want to invest your whole portfolio over time in stocks. But if you’re interested in trying your hand at stock investing, try it through a solid platform like Ally Invest, E*Trade, or TD Ameritrade. These platforms let you make trades on your own, so you can see what it’s like to build your own custom investment portfolio. You can also opt for a semi-robo advisor like M1 Finance. This one is free to use and lets you put together your own portfolio of ETFs, which tend to be more stable than individual stocks but still gives you the feel for putting together your own investments.

5. Start a Robo Advisor Account

If you want a bit more handholding, or to be totally hands off, with this starter investment, consider using a robo advisor like Betterment or Wealthfront. With a dollar amount on the small side like this, Betterment is probably your best bet. It’ll let you set your investment preferences and forget about managing your account on a day-to-day basis. And if you want a similar investing approach but want to put your $1,000 towards a good cause, try Wealthsimple, a robo advisor with handcrafted portfolios that support companies that line up with your values.

6. Consider Real Estate

If you have $1,000 but generally have a high net worth and high salary, you might qualify to invest in a real estate crowdfunding platform like Realty Mogul. Or you could invest in Fundrise, even if you don’t meet these other qualifications. The minimum investment for Fundrise is $500, so you can get started with just your $1,000 if you’d like.

7. Move Towards P2P Lending

Again, if you meet the income and net worth qualifications for peer-to-peer lending, you could potentially invest your money with a platform like Prosper or Lending Club. Some of these companies, like Lending Club, require a minimum $1,000 deposit, but you can still spread that money over several different loans to diversify your investment. The requirements for all P2P sites can be a bit different, so be sure you meet their minimum requirements before you count on investing here.

8. Use a CD For Mid-Term Savings

What if you want to put that $1,000 towards the start of some larger savings goal for the medium-term? Like buying a house or a car? In this case, you might consider putting it into a CD. If you know you won’t need it to be liquid for a set period of time, a CD can get you good return on your investment without risking your capital like you will with many investing opportunities.


Read more: Best CD Rates

9. Buy a Treasury Security

If you have a higher income tax rate, you might get a better deal from a Treasury security versus a CD. They do tend to have slightly lower rates, but their earnings are exempt from state and local taxes. Before you decide to lock your money up in either option, be sure you do the math to get the best bang for your buck.

Start Keeping Track

Whatever you decide to do with that $1,000, be sure you keep the cycle going by keeping track of both your budget and your investments. One way to do this is with Personal Capital, a platform that lets you pull all of your investing and spending data together into a single place. With it, you can watch your original investment grow, but you can also manage your budget so you can live on less than you earn and invest the rest.

FAQ

How much interest will I earn on $1k?

To determine the interest you’ll earn on $1k, multiple 1,000 by the rate of return you expect. So, for example, if you are expecting a modest 6% rate of return, you’d earn $60 in interest by the end of the year (1,000 x .06 = 60).

How should I invest $1k to make 100k?

To turn $1k into $100k, you’re expecting to 100x your investment. The best way to do this is to start with $1k and continue to invest at a regular interval over time. For example, if you started with $1,000 and invested $200 per month, every month, for 20 years and earned a modest rate of return of 6.5% (compounded monthly), you’d end up with just over $100k.

How can I invest $1k wisely?

To invest $1k wisely, you should open an account with a robo advisor and let them do the work for you. $1k isn’t enough to invest in most mutual funds or even some index funds, but it is enough to start investing with a robo advisor like Wealthfront. This way, your investment will be broadly-diversified and actively managed on your behalf.

Read more: Wealthfront Review: Low Cost Robo Investing and Financial Planning

What’s the best way to invest $1k short term?

The best way to invest $1k in the short-term is to put it into an ETF or index fund that captures a wide scope of the total stock market (like VTI for instance). Most brokers will allow you to open an account with $1k, but you might have to search around for a fund that will let you buy in for $1k (many require a minimum investment of $2,500 for example). Alternatively, you can put the $1k in a robo advisor account and let them manage it for you.

Bottom Line

Having $1k to invest is more than many people have. In fact, most Americans don’t have $1,000 to cover an emergency without going into debt. So consider yourself lucky in that sense. That’s why you want to make sure it lasts and it’s invested wisely. Review our advice above, choose a safe, short-term investment, and keep a close eye on it. Your $1,000 investment isn’t going to get you to retirement by itself, but it can serve as a wonderful safety fund and a foundation for a larger portfolio.

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Topics: InvestingMoney ManagementSmart Moneywealth

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