HOW TO INVEST $1000. Investing for beginners. 6 ways to start investing.
Investing is not as complicated as it seems – everyone can learn
Investing may seem like an intimidating task, especially for beginners. However, with just $1000, you can kickstart your journey towards financial freedom. The truth is, investing is not as complex as it may seem. In fact, it’s one of the most effective ways to grow your money over time. With the right approach, you can turn your $1000 into a substantial amount of wealth. In this article, we’ll show you how to invest $1000 and provide you with the essential knowledge and tools you need to get started on your investment journey. So, whether you’re looking to build a solid financial foundation or to grow your wealth, read on to discover how to invest your $1000 like a pro.
2 investing extremes to avoid
There are 2 investing extremes that we should absolutely avoid.
The first investing extreme is not investing at all, keeping the money under the pillow “because nobody knows what will happen tomorrow”. Many people don’t invest, for different reasons – they might be afraid of risks or scared to try something new, or they might simply not know how to do it. However we need to remember that keeping money in cash also involves risks – fire, robbery, mice, grand children… you name it 🙂 And even if your money is hidden from all mentioned risks, there is also inflation, which is eating your savings. With every second our money is loosing it’s value, if not invested.
The second investing extreme is trying to get the big profit very quickly. Some people are tempted to use risky combinations and quick solutions to try to earn the fortune as soon as possible. Perhabs some of them even succeed, but most people don’t. I don’t say it is absolutely impossible to get rich quickly, but it involves huge risks, and is very similar to gambling, because it makes people rely on luck.
The 3 most important advises for investing:
Probably the best 3 advises I personally heard on investing are these:
The First is that we should think of the long term investment rather then the short term.
The Second is that we need to diversify our investment to make it more stable, safe and profitable.
The Third is that we should start right now instead of waiting for the perfect moment.
There is no perfect time to start investing. Something will always be happening in our lives or with the market that can make us think – maybe it’s not the right time now, maybe it’s better to wait. The financial crisis is out there, the market has just crashed, you have no time, or you have just bought the house, or you have just got married or had a new baby. There is always something.
But the reality is this – the sooner you start investing, the better! You will learn quicker, and you will get your profit sooner.
There are certain investing limitations…
If you make a quick research on investing you will find out that there are many different kinds of investments and a lot of places you can invest your money in – it can be real estate, gold, business, stock market, bonds etc. In many cases you need a lot of money to be able to invest, because there are certain limitations and investing minimums. But if you have only one thousand dollars it doesn’t mean you cannot start investing. It is not a big amount of course, and we should not be expecting hundreds and thousands of dollars coming in from this investment in the first year, let’s make it very clear. But if you are a beginner and you are considering investing your first money, it is definitely good to start with a small amount.
It’s good to start with the small amount, here’s why
The main benefit of starting with only $1000 is the learning experience – if you start investing today even with a small amount like $1000 you will probably not make tons of money in the next couple of month, but you will start getting more and more knowledge in this field, so when you have more money to invest you will know how to do it and how it works, and how to minimize the risks. Consider it an educational course. Usually people pay money for education, but instead of paying $1000 to someone else, you will use it to get the knowledge and experience and even make some additional money on top of this one thousand.
The other benefit is that you don’t risk to lose a big amount of money. I’ve seen many cases when people without any knowledge base or experience invested like 20, 30 or 50 thousand dollars expecting big profit quickly and they lost it all, because they didn’t really know what they were doing, they didn’t know how investing works, and you definitely don’t want to repeat their mistakes. So if you invest $1000 and you focus on learning the main principals and rules of investing – you minimize the risk of loosing money and you also develop good investing habits to do it correctly in the future.
Pay off the debts before you start investing
Before you start investing you probably want to consider paying off the debts first, especially those with high interest. For example if you have a debt of $1000 and you are paying 25% interest, and instead of paying off that debt you decide to invest $1000 with 6% interest – guess what? You are not making any money, you are actually losing. So if you have high interest debts – consider paying them off, that’s probably your best investment for now.
Here are 6 ways how you can start investing with $1000:
Automated investing with Robo-advisers such as Betterment and M1 Finance
If you would like to build your investment portfolio, but you are a beginner, you would appreciate if someone with experience would give you a good advise and help you to make your first steps in the world of investing. But such advises are not given for free, and with $1000 to invest you probably don’t want to pay financial advisers. Robo-advisers can be a great solution. They take some of the best investing strategies and use artificial intelligence to implement them. If I am a beginner and I know nothing about investing, then probably these robo-advisers can make better investing decisions then me. You can get your investments set up with much lower costs or no cost at all, and you can almost forget about it, because you don’t have to do anything. Your account will be actively managed and you will get all benefits.
The biggest players in robo-adviser market are Betterment and M1 Finance, definitely check them out if you want to start investing.
Real Estate – REITs
The next way to invest $1000 is to invest in Real Estate. You probably think «how can I invest $1000 in the real estate? Should I buy a doghouse or something?» No, you don’t have to buy or manage any property yourself. You can invest in REIT which stands for Real Estate Investment Trusts with even less then $1000. The same as buying a stock in the company, you can buy a share in the property. The Real Estate Investment Trusts collect the money from investors like you and me and buy property of the certain category – like office facilities or medical buildings, shopping centers, residential apartment buildings or senior citizen centers, and they give some part of their profit to us investors in the form of dividends. Some examples are Fundrise, Realty Income, Four Corners Property Trust.
Dividend Stocks
Another very simple and very common method of investing is buying a dividend stock. What that means is that you are actually buying a very small part of the company you have chosen, and now you are entitled to some of their earnings, which are paid in the form of dividends, usually 4 times a year. Normally the companies pay between 1.5% to even 6% or 7% per year. You can check that before you buy a stock. So if you invest $1000, you can get from $15 to $70 after 1 year. This doesn’t sound like a huge money, but it’s totally passive, you don’t have to do anything.
In addition to the dividends paid 4 times a year, the price of the stock will hopefully also grow over the time, and if it grows 8% – it will give you $80 on top. Yes, it can happen that the price of the stock will fall – in that case you will lose, but only if you sell this stock. You don’t have to sell it, you can wait until the price goes up again. The dividends percentage doesn’t change if the price grows or falls, so at least you can count on that passive income.
Index Funds
You probably heard the terms Index funds, Mutual Funds, Exchange traded Funds. The idea is that instead of buying a Dividend Stock of some specific company, you buy a small piece of everything and by doing so you diversify your investment money. Diversification is a very good habit, super important for all investors, no matter if you invest one thousand or one million.
The good thing about Index funds is that you are investing your money not only in different companies, but also in different sectors of economy, so if one sector of economy has problems, another sector will compensate that. This kind of investing is very stable and very consistent. Index funds also have dividends, and the expectation is that the stock price will also grow over the time, the same as with dividend stocks. It’s good for long term investments – if we look back at the past 20 to 30 years, the stock price grows on average 6-8% annually. The great platform for this kind of investing is M1 Finance – you don’t pay management fees or trading commissions, and you can purchase fractional shares.
Don’t try to predict the market – we all are just guessing. It’s much better to invest consistently and do it long term.
Bonds
The next way to invest $1000 is Bonds. Bonds is a sort of a loan, when State or Government or Companies want to borrow money with the promise to return it after some time with the interest. Important thing to mention is that bonds have a Maturity date, which means you will get your money back with interest after the bond matures. It can be from few months to few years, depending on the bond. This is considered to be a very stable investment, especially if the bonds are issued by the State, therefore many investors keep at least some bonds in their investment portfolio.
Small Business
The next method I would like to mention here is starting your own small business. Unlike the other methods we mentioned, this way of investing will require some of your time and efforts, but you can also make a better money. You can use 1000 dollars to buy or produce some goods and then sell them at the bigger price, or you can buy some basic equipment and provide the services. This is not a passive income and it involves a bigger risk, but on the other hand it gives you the opportunity to start your own small business and then grow it. When I started my first business I invested less then 100 dollars just to buy used cell phone, so that my clients could contact me easily. After 4 years I had my own shop and a manufacture to produce the wooden floors of my own brand.
Why you should start investing instead of keeping money in cash?
There are several reasons why someone should consider investing their money instead of keeping it in cash:
1. Inflation: The value of money tends to decrease over time due to inflation. If you keep your money in cash, it may lose value over time, whereas investments can provide higher returns that can keep up with or exceed inflation.
2. Long-term growth potential: Investing provides the potential for long-term growth of your money. By investing in assets such as stocks, bonds, or real estate, you can earn returns that are higher than the interest you would earn by keeping your money in a savings account.
3. Diversification: By investing in a variety of assets, you can reduce the risk of losing money. Diversification means spreading your investments across different types of assets, industries, and geographic regions. This can help you avoid the risks of relying on a single investment.
4. Retirement planning: Investing can be an important part of planning for retirement. By starting early and regularly contributing to a retirement account, such as a 401(k) or IRA, you can build a substantial nest egg that can provide for your future financial needs.
5. Meeting financial goals: Whether you want to save for a down payment on a house, pay for your children’s education, or build wealth for the future, investing can help you achieve your financial goals. By setting specific investment objectives and developing a plan to achieve them, you can make your money work harder for you over time.
Of course, investing also comes with risks and it’s important to understand these risks before making any investment decisions. It’s important to do your research, seek professional advice, and have a well-thought-out investment strategy before investing your money.
