It would be an understatement to say that the last year was challenging in almost every way. A pandemic continues to change how we live and work. Still, many people are losing jobs and having a difficult time finding a stable income source.
So it's no wonder few people think about investing. After all, why invest any amount of money if you can lose it all to unforeseen circumstances? However, investing isn't as scary when you know what you're doing. And it doesn't even have to be a considerable sum of money either.
You can start investing with as little as $2,000. Of course, you need to know what your options are, as well as their benefits and risks. So in this article, we’ll show you how to invest $2k and reach a net benefit from your investment. Of course, some of these methods will only work with specific types of investors.
So, before you decide how you will invest the cash, make sure to do further research. I can't stress enough how important additional research is.
Explaining every financial term related to investing is far beyond the scope of this article. And if you make the wrong investment because you misunderstood the terms, you might end up losing far more than the original $2,000.
Now that we've given a disclaimer, let's dive in.
Overview: Where and How to Invest $2000
|Investment Type||Best For|
|Stocks||Hands-on investing, high risk, high returns, some income potential|
|Bonds||Low risk, low rewards, income potentials|
|Real Estate||Income, leveraged investing|
|Robo Advisors and Financial Advisors||Hands-off investing, broad diversification, comes at a cost|
|Savings||Low interest, emergency funds|
|Peer-to-Peer Lending||Diversification, high risk, high rewards|
|401k and IRAs||Retirement savings|
|Art||Diversification, high risk|
|529 Plans||Saving for child’s education|
Investing in Stocks
Everyone has heard of the stock market, including people who know nothing about it. And, of course, everyone knows the risks that come with this type of investment. Yes, putting your money in a single stock can lead to a variety of results. So why do I think it's still one of the best options?
Despite its ebbs and flows, the stock market can be one of the most stable forms of earning money out there. For example, the market returns roughly 8-10% yearly, based on historical data. In other words, people who invested in stocks got 8-10% of that investment back.
Now, imagine investing, let’s say, $2,000 and reaping the benefits over an entire decade. If you didn’t touch that money for ten years and it earned 8% annually, you’d end up with $4,317.85 more than double your original investment. Quite impressive numbers, wouldn’t you agree?
So, those who want to know how to invest $2k should take notes. When it comes to modern stock trading, you need the best platforms, and here are a few that stand out.
Yes, we know Robinhood has been a significant part of the recent GameStop short squeeze event. However, we would recommend this platform, especially to people who need to figure out how to invest $2k easily.
Robinhood is still a relatively new platform. However, it comes with many benefits for the average consumer, with the best part being a user-friendly mobile app. Let’s list some of the other benefits:
- Commission-free trading on stocks and ETFs
- Free trading for options
- Free trading for cryptocurrency
- Easy-to-use cash management account for quick money transfers
- Robinhood Gold, a premium-tier option for as little as $5 a month
- Research and margin trading tools (with Robinhood Gold)
Of course, Robinhood isn’t perfect. For instance, currently, it only offers individual taxable accounts. So, if you want IRAs or joint accounts, you will have to wait a bit longer. Also, many research tools are not available unless you purchase the Gold option. But overall, with its easy-to-use app and lots of free trading variants, Robinhood is a great broker for most people.
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To any beginner who doesn't quite know how to invest $2k, TD Ameritrade will be a blessing. Sure, it's not exactly the cheapest brokerage platform, but it comes with many benefits. For instance, it has close to 400 different analysis tools and charting indicators. Its competition simply cannot compare.
Furthermore, they have commission-free trading on ETFs and stocks for both active and passive investors. And to anyone new to investing, they offer lots of instructional videos, training courses, and trading demos.
TD Ameritrade also comes with a couple of sub-platforms, Trade Architect and thinkorswim. thinkorswim was originally an independent platform, but TD Ameritrade acquired it back in 2009. This sub-platform, in particular, is helpful for investors who want to test a trade and its timing before going through with it.
You can do this via a virtual trading environment called paperMoney, a free trial period for all interested investors. Of course, thinkorswim might be a bit too complicated for new investors who are still figuring out how to invest $2k. Luckily, Trade Architect is perfect for any newcomers interested in the stock market.
Read more about it in our TD Ameritrade Review
Nowadays, almost all stock investment platforms do not charge commission fees for ETF and stock trading.
Similar to TD Ameritrade, E*TRADE is perfect for investors from all walks of life. In reality, anyone can get used to E*TRADE beginners, expert traders, active or passive investors. Even people who have no idea how to invest $2k in the right way can quickly get into E*TRADE. After all, it has a fantastic smart device interface, many trading tools, and one of the top trading platforms, Power E*TRADE.
But it doesn't stop there. E*TRADE also offers webinars, educational videos, and news clips about the stock market, perfect for anyone willing to learn. Also, their phone and online chat support are ready to help 24/7. And to top everything off, you can connect with top-tier E*TRADE financial analysts for expert advice on your current and future investments.
Using Automated Investing (Robo-Advisors)
When thinking of investing $2k, we often get confused with so many different financial terms flying around. So if there were an intuitive way of managing your investments, that would be great. That's where robo-advisors come in.
A robo-advisor is an online platform where traders can build a portfolio. Using a robo-advisor is easy and has a lot of benefits. All you need to do is answer some questions to find out your risk tolerance and goals and the robo-advisor can do the heavy lifting for you. You can also create a balanced portfolio with far less than $2,000. Some platforms will allow investors to get started with just a dollar. So the question of how to invest $2k now gets a follow-up. Which robo-advisors are a good starting point?
Betterment tends to be one of the first platforms people suggest when talking about robo-advisors. And there’s a perfect reason for it. Simply put, they know their way around finances and investing, and the number of active clients speaks for itself.
Here’s a shortlist of everything Betterment offers, in no particular order:
- Personalized investor portfolios that provide varying levels of volatility and risk
- Goal-based investing
- Retirement savings investing
- A tiered pricing strategy that will increase with compound investments
- No minimum account balance is required to start with this platform
- Premium plan with in-depth financial advice and analysis.
Wealthfront has come a long way since 2008, starting as a mutual fund analysis company. This platform covers everything from banking and lending to investments and is one of the best robo-advisors today. The robo-advisor also offers additional valuable features as your Wealthfront portfolio continues to grow.
Speaking of valuable features, let’s list a few that you receive with Wealthfront:
- Every single account includes risk management and tax-loss harvesting (for a small 0.25% fee)
- Access to stock-level tax-loss harvesting and risk parity comes with any balance of $100,000+
- Wealthfront's Smart Beta program access comes with any balance of $500,000+
- Various account types, such as taxable, retirement, and 529 college savings
Of course, Wealthfront is not without its issues. For example, the 0.25% fee is larger than the fees of Wealthfront’s competition. Furthermore, you will not have access to certain features unless, at least, you have $100,000. However, if someone needs to think about how to invest $2k, they can start with Wealthfront.
With this platform, you can buy portions of a company's stock or a fund share for next to nothing. And for $3 a month, you gain both bank and brokerage accounts, as well as access to IRA or a Roth retirement account. Couple that with the Smart Portfolio option, and you have an excellent method of investing $2,000. However, the Smart Portfolios do have one drawback. Namely, they do not offer any tax-loss harvesting.
Investing in Peer-to-Peer Lending
Peer-to-peer lending is perfect for people who are not sure how to invest $2k yet. Let's compare it to stock investing for a second, shall we?
When investing in stocks, we expect a turnout after a certain period. It can vary from a year to several decades, but at its core, it's a long-term investment strategy. And long-term investing is nice and safe, but we do not get immediate results.
On the other hand, we have short-term investing, such as P2P lending. The process is relatively simple. Instead of buying stock, you lend money to businesses or individuals and then expect a return with interest. On paper, it looks a little like this:
- The borrower makes an account on a P2P platform and applies for a loan.
- You, the lender, also create an account on that platform and buy the debt from the borrower.
- The borrower pays in monthly installments, with interest included.
One of the most notable benefits of P2P lending is that you can start investing with as little as $10 per loan. In other words, if you start with $2,000, you can invest in as many as 200 different loans and expect a decent return reasonably quickly.
Now that you know what P2P lending is, you should also figure out the best platform for this type of investment. Some of our favorites are listed below.
Lending Club is quite famous due to how much (or rather, how little) you can invest. But more importantly, it allows investors to fund fractions of loans that they call ‘notes.’ Each note gets a grade (A, B, or C), and they come with either three-year or five-year terms. And in fact, you can buy these notes in small increments of $25.
As a lender, you can invest in either an individual retirement account or a non-retirement one. Also, Lending Club has an excellent investor training section if you need further information on investing $2k. If you do everything by the book, you should expect a solid return, minus the losses and the fees. One such fee, the so-called investor service fee, amounts to 1%, and it goes directly to the Lending Club.
The 1% investor service fee and the $25 increments investment isn't exactly unique to LendingClub. It's one of Prosper's main features, a platform that has yielded some impressive returns to its clients. How impressive? Well, how does $17 billion in 16 years sound?
All loans with Prosper range from AA to HR. Moreover, the interest rates can amount to anywhere from 3.4% to 8.2%. That’s a lot of options with substantial potential returns. If you combine that with a state-of-the-art mobile app that lets you track everything about your investment, we have ourselves a winner.
When we think of how to invest $2k, we tend to forget that a simple high-interest savings account could very well be the best option. First off, it’s safer than investing in stocks. Next, the interest rate might be lower than that of the stock market, but there’s next to no risk when sticking money in a savings account. Finally, a decent savings account can also be an emergency fund. Emergency funds are crucial, especially if you lose your job and avoid taking on debt.
Of course, you can't forget the withdrawal aspect. Both high-interest savings accounts and stock investing are long-term strategies. In other words, some time will have to pass before you can see huge returns. However, it's a lot easier to withdraw money from a savings account whenever you need it, so it might just be the best investment option to consider.
So, what does it take to make a proper $2,000 investment? An adequate bank, of course. Listed below are four banks that offer the best options for high-interest savings accounts.
When depositing in TD Bank, you have a choice between three solid savings accounts. Of course, you will have to pay monthly maintenance fees and minimal interest. Nevertheless, you will still have a safe spot to store your money.
The best way to use a savings account in TD Bank is to store the savings if you decide to have overdraft protection for a checking account. In other words, if you overspend, the savings account can cover those costs. Naturally, overdrafting comes with fees, and every time you use that option, TD Bank will charge a $3 fee.
Chase Total Checking Account
Chase Bank is a modern bank. They provide clients with physical and online banking options. Furthermore, if you want to open a new account, you do not need a minimum balance.
Of course, we did notice a few standout drawbacks to Chase Total Checking® accounts. For example, you need to pay a $12 maintenance fee each month (with ways to waive). Also, the APY for this account is 0%. In other words, you will not earn a single dollar from interest on the money that you already have in the checking account. Naturally, that isn’t exclusive to Chase, as most banks don’t pay interest on checking accounts. That’s because the average APY for interest checking accounts is usually low, if there is any, to begin with.
Chime is an award-winning financial app and debit card. So, what exactly makes Chime stand out? Here’s a list that explains it perfectly:
- There is no minimum balance requirement for an account
- Chime will deposit each difference from a purchase on your Chime card into the savings account
- Alternatively, Chime can transfer 10% from each paycheck into a savings account automatically
- Chime's mobile app is easy to use and has some of the best reviews online
- You can get daily balance updates and real-time transaction alerts with the app
- The app can block transactions if you lose your Chime card or if it gets stolen
- Chime does not screen for people that were blocked from having bank accounts
Quite a plethora of options there. Of course, there are a few details that might not make Chime the best choice. For example, the difference transfer and the 10% paycheck transfer are optional features, and you can't use them both at once. Besides, you can't have a Chime savings account without actually having a matching spending account.
Chime Disclosure - Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank, N.A. or Stride Bank, N.A.; Members FDIC.
1Chime cannot guarantee when files are sent by the IRS and funds can be made available.
^Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.
Many millennials and college students (i.e., people who most likely have less experience in investing $2k) love Ally. After all, it’s an online bank where check deposits and account openings can be done in minutes. Also, you can easily assign several goals in a single savings account. All you have to do is grab a keyboard, type in a few names, and hit “Save.”
However, there are risks to using Ally. This bank will limit the number of transfers that come in and out of a high-yield savings account. It will do so six times per one statement cycle. Therefore, each transfer that goes over the set limit will result in paying a fee. And unlike some banks, the limit-breaking fee is $10, which is not a small amount.
Read more in our Ally Bank Review
Working with a Financial Advisor
If anyone has any idea how to invest $2k, it's a financial advisor. After all, it is their job to let the client know if investing (or not investing) somewhere is a good idea.
With the advancement of the internet, banking and trading can be done online, making investing much easier and quicker than before. But they are far from being the only ones jumping on the digital bandwagon. Nowadays, you can easily find financial advisors online. You can figure out how to invest $2k and stay debt-free at the click of a button.
Here are a few platforms that can help anyone find the right financial advisor to help with the $2,000 investment.
Sometimes, one advisor is simply not enough. So, if there is a platform that can help us find the best help out there, it should be one that can offer multiple advisors at once. SmartAsset is just such a company, and with their help, you can learn how to invest $2k in no time.
SmartAsset allows clients to match with up to 3 different financial advisors. Each of those advisors is a certified expert who can help the client achieve their investment goals. Furthermore, using SmartAsset's matching system is completely free of charge. Any information you exchange with the advisors stays protected.
Paladin Registry might not be as popular as SmartAsset, but it has some perks. After all, any platform allowing clients to use its features for free is a winner in our book. That’s especially true if the features are easy to understand and use by anyone, even people who have zero clue how to invest $2k.
While browsing for advisors, you simply need to provide some basic info and wait for the match. Furthermore, you can use your ZIP code and locate pre-screened advisors in your area with the best online scores. And no, that’s not where Paladin Registry’s benefits end since this platform has yet another helpful feature. Namely, you can search advisors by name and conduct your research into their past work. This helps screen the good advisors from the shoddy (and shady) ones.
Plenty of financial advisors can tell us how to invest $2k, and one of the options they will mention is your 401(k). After all, you can always use your $2,000 to bulk the 401(k) up a bit. However, you should keep a few key details in mind:
- The maximum amount of money that can go into a 401(k) is $19,500 in 2021
- Each contribution is made before taxes, reducing the taxable income
- The closer your 401(k) is to maxing out, the lower your tax liability for the year will be
- You need to match your employer's 401(k) contribution
Now you know this information, the question remains can you invest $2,000 in your 401(k), and is there a platform out there that can help us? Well, incidentally, there are two that stand out.
Blooom consistently rates the highest when it comes to figuring out 401(k) plans. That’s because it was, for a while, the only Robo-advisor dealing exclusively with retirement plans. With blooom, you can manage employer plans and IRAs without moving the account to a unique platform. Moreover, you don’t even need consent from your employer to use the advisor.
As an automated investing platform, Blooom can help with creating and managing portfolios. Furthermore, if there are any hidden investment fees in your plans, it can locate them and even reduce them. This is a crucial feature since some employer-sponsored plans tend to have investment fees that are way above average.
Instead of stocks or savings accounts, plenty of people would use their investment money to buy bonds. Now, this wouldn't be a how to invest $2k article if we didn't cover both the good and the bad, so let's first focus on the bad. Namely, investing in bonds requires us to understand how bonds work.
To grossly oversimplify, one party pays another money. Still, the two have an understanding that the second party will pay everything back in the future. Naturally, they will pay the money back with interest. However, there are various types of bonds out there, and not all of them work the same. Understanding them will take effort, which means this option might not be suitable for beginner investors.
So, what's good about bonds? They are a less risky investment than stocks, which is why both private individuals and big companies invest in them. And speaking of investing, buying bonds is not that difficult. You can buy them from the government by using discount brokerages. Alternatively, an investment platform online might offer bonds as part of an investment portfolio.
Learn More: How to Invest in Bonds
There are plenty of exciting platforms out there that handle buying and selling bonds. So, to anyone interested in learning how to invest $2k in bonds, here's a handy list of where they can start.
Worthy Bonds is an excellent peer-to-peer investment hub. You can use your $2,000 and invest in bonds that small businesses issue. Many of these bonds are collateralized by business inventory, so there is no need for an FDIC guarantee for them.
By far, the best feature of Worthy Bonds is their impressive mobile app. With it, you can add funds to an investment account automatically. Furthermore, as you spend, small amounts of money automatically go to the savings account. The moment you accumulate an even $10 in these 'round-ups,' you can use that money to purchase a bond. It's an easy, streamlined way of earning money via investing in bonds.
Investing in Real Estate
There isn’t much to say here investing in real estate is risky, but you don’t have to be carrying fat stacks of cash to do it and reap some of its benefits. Thanks to the SEC’s guidelines in 2016, investors can share capital for any type of collective property investment. In other words, there will be others, like ourselves, who want to decide how to invest $2k and whose final decision will be real estate.
Fundrise is by far the most popular platform for investing in real estate. More specifically, you can use it to invest in a REIT despite having a low net worth. To be precise, you can invest as little as $500 in a REIT.
Here are some of Fundrise's features that make it the top dog among real estate investment platforms:
- Investing in real estate properties that generate income, such as rental properties, all through Fundrise's sub-platform called eREIT
- Pulling capital together to trade and develop properties through another sub-platform, called eFund
- A portfolio that contains qualified offerings which the SEC regulates constantly
- Membership levels of commitment to Fundrise can go up to $100,000
Investing in Art
Buying and selling art is one thing, but if you need to figure out how to invest $2k in it and gain decent returns, it requires a bit more help. After all, unlike a stock or a bond, a piece of art will not in and of itself generate income just by sitting in one spot for decades. So, investing in art needs a careful approach, and there is a perfect platform to do it with.
Masterworks is a platform that allows clients to invest in pieces of art as if they were buying off ‘shares’ of each piece. If and when the ‘majority owner’ of a work of art sells it, the percentage proportional to your initial investment will come directly to you. And this percentage can be huge, anywhere between 8 and 30%. It’s a great way to invest money and preserve the cultural heritage of our country. Moreover, it’s an excellent way to appreciate art and get more people from the financial world interested in it.
SEE IMPORTANT INFORMATION HERE.
Opening a 529 Plan for Children
529 plans are a must for kids. They are education savings plans which are similar to IRAs. In other words, you can invest in different asset types to grow your money in the years to come. However, 529 plans differ significantly from a typical IRA in a few key elements. For instance, when you have a 529 plan, you can withdraw from it for specific educational purposes. But the best part about that is the lack of any tax liability from the federal government.
Of course, a state might even offer deductions or income exceptions to people with a 529 plan. However, you would need to check with the regulations in your state of residence to make sure. Sadly, when you contribute to a 529 plan, you have precisely zero tax benefits.
Related Podcast: How to Invest in a 529 Plan
How can I invest 2k wisely?
$2k isn’t enough to retire on, but it’s still a bit of money. To invest wisely, you should consider putting it into a broadly-diversified portfolio (such as using a robo advisor) or into a handful of diversified and inexpensive index funds.
What’s the best way to invest $2k short term?
To invest $2k short-term, focus on relatively safe and diverse investments. This means a mutual fund, ETF, or an index fund that is already diversified and has lower costs.
What about paying off debt?
You can think of paying off debt as a form of investment. You’re investing that money in reducing your loan payments and the amount of interest you get charged. The interest rate of the debt you pay off is the equivalent of the rate of return you earn from paying down the balance. Paying down high interest debt, like credit card debt, is usually a good idea before you start investing.
And there we have it. To anyone curious and willing to know how to invest $2k, this article might just provide the answer. However, we encourage our readers to remember there is no method of investing money that is 100% foolproof. And while $2,000 might not be a lot when it comes to investing money in the U.S., it’s still not a sum we would enjoy parting ways with.
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