The Best Ways to Invest $1,000

You don’t have to be wealthy to become an investor. On the contrary, there are plenty of ways to invest smaller amounts of money. The key is finding investment opportunities that don’t charge excessive fees that can reduce the size of your profits. If you’re ready to begin investing, these are some of the best ways to invest $1,000 without the huge risks.

For hands-on guidance when choosing your investments, consider working with a financial advisor. 

Benefits of Investing

Some savings accounts offer solid interest rates that help build your savings incrementally, but by opening an investment portfolio, you can begin to take advantage of compound interest. This allows investors to earn interest on the interest they’ve already earned. Over the years, compound interest can have a strong effect.

Despite the ample benefits of investing, there are drawbacks to be wary of. For example, all investments carry some risk. Generally speaking, the riskier the security, the higher the potential return. Because of this, every investor must consider which securities align with their needs.

Investing is often thought to require ample funds, but even the smallest nest eggs can grow significantly. This becomes especially pertinent when you look at how much time you have to save before you hit retirement.

These are some of the best ways to invest $1,000.

1. Invest in Mutual Funds

Mutual funds give multiple investors the opportunity to combine their funds and collectively invest in stocks, bonds and other securities ¹ . These securities are companies unto themselves, and they are run by investment professionals. They typically stick to a sole investment strategy and look to diversify a portfolio within those parameters. They can be actively or passively managed.

Many mutual funds track market indexes. These index mutual funds mimic the performance of securities in a broad market index. Examples of indices that a mutual fund might follow include the S&P 500 and the Nasdaq-100.

Because they lack extensive management, index mutual funds are almost always cheaper than actively managed funds. If you can find a no-load fund, you won’t pay a commission fee when you sell your holdings.

Doing some preliminary research into mutual funds will show that they often have high minimums. Despite this perception, there are options from companies like Vanguard that require minimum investments of $1,000 or less ² .

2. Buy Exchange-Traded Funds (ETFs)

You don’t have to have $1,000 saved up to invest in an exchange-traded fund (ETF) ³ . Much like stocks, ETFs trade on public exchanges. If you want to purchase your own ETF, you only have to buy a single share. The price you pay will vary, depending on your investing strategy, the ETF’s index and the broker you choose.

Because of the way ETFs trade, investors typically aren’t taxed as heavily on their capital gains. Compared to mutual funds, ETFs tend to have lower expense ratios. This means you’ll probably be able to skip out on paying high administrative or management fees.

While ETFs provide a relatively inexpensive way to get into the investing game, it’s a good idea to account for any additional fees or broker trading commissions you may have to cover. Also, some ETFs are riskier than others, particularly if they track indexes whose prices fluctuate repeatedly over a 24-hour period.

3. Stick to Safe Investments

Both bonds and CDs can be safe investments, depending on how you invest.

Bonds

Your $1,000 investment can go a long way if you invest in bonds. For investors who don’t want to shoulder too much risk, the government and private companies offer a number of different options, including these ⁴ .

• Corporate bonds
• Municipal bonds
• Savings bonds
• Floating rate notes (FRNs)

It’s best to diversify your investment portfolio by including a variety of securities.

Bond return rates alone aren’t high enough to provide you with much supplemental income or help you beat inflation. In other words, they’re best when built into an overarching portfolio.

CDs

Certificates of deposit (CDs) are another type of fixed-income investment ⁵ .

These are essentially high-yield savings accounts. You can use your $1,000 to open an account at a bank or credit union. Not only will you be able to earn decent returns, but you’ll also feel secure knowing that your investment is backed by FDIC insurance, up to $250,000.

One key factor to consider before buying a CD is that you may have to wait a while before you can withdraw your investment. CDs can mature after a few months or within one, three, five or 10 years. If you can’t wait until it reaches its maturity date, you may have to pay a withdrawal penalty.

4. Use a Robo-Advisor

A robo-advisor is a digital investment platform that manages your portfolio for you. This includes buying and selling securities, rebalancing and tax-loss harvesting. The company that runs the robo-advisor typically creates portfolio models that are aligned with specific risk tolerances. The robo-advisor will then review your needs and determine which portfolio is best for you.

Once this is done, your funds are disbursed into the market according to your model. As market conditions shift and returns start coming in, the robo-advisor will trade securities to keep your original portfolio strategy intact. While this process varies from company to company, it generally adheres to this setup.

Robo-advisors are driven directly by the growth of technology in the investment sphere. Many investors see them as cheap alternatives to financial advisors, as they usually come with high fees. In some instances, robo-advisors will even staff humans to answer your questions.

These are some of the top 10 robo-advisors on the market.

5. Consider Target-Date Funds

Target-date funds ¹⁰ could be worth considering if you prefer a passive investing strategy over one that requires you to review your portfolio throughout the year. They are mutual funds that allow an investor to meet a specific asset allocation by a preset future deadline, such as the year the investor plans to retire.

A portfolio manager takes it upon themselves to make necessary adjustments to target-date funds over time. In turn, investors can keep their hands off them until the predetermined date arrives.

A target-date fund is perfect for those who don’t want to bother with rebalancing their investments. However, you won’t be able to switch up your portfolio if your risk tolerance changes.

On top of this, the management fees for target-date funds can add up if you have a high expense ratio. The best way to invest $1,000 in a target-date fund is to find one that charges low fees.

How an Advisor Can Help You Create a Plan to Invest $1,000

A financial advisor can look at your income, debt, savings, and goals and tell you whether that $1,000 belongs in a retirement account, a brokerage account or somewhere else entirely. That kind of personalized direction is hard to get from a trading platform or a generic online guide.

Before putting $1,000 into the market, a financial advisor will ask the right questions first. If you are carrying high-interest credit card debt or have no emergency fund, investing that money may not be the smartest move yet. An advisor can help you figure out whether now is a good time to invest or whether that $1,000 does more good elsewhere in your financial life.

Once you are ready to invest, an advisor can match your investment choices to what you are actually trying to accomplish. A 25-year-old saving for retirement has very different needs than someone saving for a down payment in three years, and the way that $1,000 should be invested is completely different in each case. Getting that match right from the start saves you from costly adjustments later.

Taxes matter even with a small amount, and a financial advisor can steer you toward the account type that keeps more of your money working for you. Contributing $1,000 to a Roth IRA, for example, means that money grows completely tax-free for decades ¹¹ . That distinction, made early, can be worth far more than the original investment by the time you retire.

The biggest thing an advisor can do for a first-time investor is help build the habit of investing consistently beyond that first $1,000. Setting up automatic contributions, choosing low-cost funds and having a clear plan for what to do with future savings matters more than any single investment decision.

Getting that foundation right at the beginning is what turns a one-time $1,000 deposit into a portfolio that actually grows over time.

Bottom Line

Whether you want enough spending money for a trip abroad, a wedding or anything else, investing just $1,000 can be a great first step toward reaching those financial goals. If you have concerns or you’re not sure which investment would best fit your needs, try contacting a financial advisor who can guide you.

Tips for Learning How to Invest

• Financial advisors spend lots of time in the investment market, making them great partners for anyone wanting to invest. If you don’t have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Just like any subject, one of the best ways to learn about investing is to read up on it. Depending on how much knowledge you have going in, there are a number of books that could suit you. Take a look over SmartAsset’s list of the eight best investing books for beginners and beyond.

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