According to a recent Pew Research Center study, more than half of American adults have money invested in the stock market. Although the median holdings (amounts invested) vary based on age, income, and other demographic factors, it’s clear that Americans see the value of investing — even if their exposure is limited to a workplace 401(k).
If you have a fully-funded emergency fund and have an extra $1,000 that you don’t immediately need, you have a lot of options. Unfortunately, the sheer number of investment options to choose from can be overwhelming and downright confusing.
That’s why I wanted to share some of my favorite ways to invest $1,000. Whatever decision you make, you should be proud of yourself for taking the time to be thoughtful with your money.
#1: Build a Diversified Portfolio With Fractional Share Investing
Risk level: Medium
Although you can always invest in individual stocks, fractional share investing lets you purchase a fraction or “slice” of a stock you want. This investing strategy lets you diversify your investments to the max, and invest in big-name stocks you couldn’t otherwise afford. For example, a share of Amazon (AMZN) stock is trading for over $3,000 as of this writing. Where your $1,000 investment wouldn’t get you in the door with a single share, fractional share investing lets you invest your $1,000 into a slice of one Amazon stock.
This way of buying stock is perfect if you only have $100 to start investing, but it works well for investors who have $1,000 or $5,000 to invest, too.
How It Works: Investing in fractional shares is as easy as investing in traditional stocks or ETFs. All you have to do is find a brokerage firm that allows fractional share investing. From there, you can research options and invest in the fractional share market at your own pace.
Where to Get Started: Robinhood offers real-time fractional share investing without charging any commissions. Fractional shares can be as small as 1/1,000,000 of a share, so you can spread your $1,000 initial investment across hundreds of different companies. Learn more about Robinhood.
If you open a new account with Robinhood, you can get a free stock worth up to $225!
Who It’s Best For: Fractional share investing is a good option for anyone who wants to diversify their portfolio by investing in different companies.
|Fractional Share Investing Pros||Fractional Share Investing Cons|
|Diversify your investments across many stocks and ETFs||Not all brokerage firms offer fractional share investing|
|Invest in large companies with share prices of over $1,000||Costs can add up quickly with brokerages that charge commissions for trades|
|Fractional share investing can be commission-free depending on the brokerage you select|
#2: Build a Micro Real Estate Portfolio
Risk level: Medium
There are dozens of ways you can get started investing in real estate, but the easiest is through Fundrise. With just $500 (only half of the money you have to invest), you can make an initial investment. You can use their starter portfolio, which puts your money into several different REITs and gives you instant diversification. Another solid option to check out is Realty Mogul.
How It Works: Fundrise REITs let you invest whatever money you have (in this case, $1,000) into real estate without having to become a landlord. Simply open an account, transfer some money to get started, and select a portfolio option that aligns with your appetite for risk and your goals.
Fundrise takes care of the grunt work of real estate management and finding new investments for you. As a side note, Fundrise investors earned an average platform return of 22.99% in 2021(3.49% in 2022 so far). You can check out my 4-year Fundrise returns here.
Where to Get Started: If you’re looking for a quick and easy way to invest in real estate without having to manage buildings or having your investments diminished from fees, Fundrise is your go-to option. Learn more about investing with Fundrise.
Who It’s Best For: Fundrise is an ideal investment option for consumers who want exposure to real estate markets without having to become a landlord or deal with individual properties.
|Fundrise Investing Pros||Fundrise Investing Cons|
|Low minimum balance of $500 required to get started||This investment option is not liquid, and it can take months to get your money out|
|Exceptional returns so far (average return of 22.99% in 2021)||Like other investments, past results are not a guarantee of future returns|
|Only 0.15% in annual advisory fees|
#3: Let Dividends Pay Your Monthly Bills
Risk level: Low
What if you could get your cellular provider to pay your cell phone bill every month? That would be pretty sweet, right? Heck yeah, it would!
That’s exactly what could happen if you invested your $1,000 into a telecommunication stock such as Verizon or AT&T that both pay a salty dividend.
If you owned enough shares the dividend payments could cover your monthly bill so it’s like you’re getting your cell phone for free. Can you hear me now?
You could apply this to other monthly expenses such as your electricity bill, internet, gas, entertainment, and groceries. Here’s some examples of companies you probably pay for their service that has a stock that pays a dividend.
If you need a refresher on dividends, check out this article on how to make $1,000 per month in dividends.
One of the easiest platforms to build a custom dividend portfolio is M1 Finance.
#4: Open a Roth IRA
Risk level: Varies
A Roth IRA is a type of investment account that lets you invest after-tax dollars for retirement. From there, your money can grow tax-free, and you can withdraw your funds without having to pay income taxes once you reach retirement age. For 2022, the maximum contribution amount across IRA accounts is $6,000 for most people. However, individuals ages 50 and older can contribute up to $7,000.
How It Works: Income caps limit who can contribute to a Roth IRA, but note that contributions are phased out completely for single filers who earn more than $144,000 and married couples who earn more than $214,000.
Where to Get Started: Eligible investors can open a Roth IRA with any brokerage account that offers this type of account. Some of the most popular brokerage firms that offer Roth IRAs include Betterment, Stash, M1 Finance, and TD Ameritrade.
Who It’s Best For: Investing in a Roth IRA makes sense for anyone who’s saving for retirement or a future goal. This type of account is also ideal for anyone who wants to set up a tax-free income source for their retirement years.
|Roth IRA Pros||Roth IRA Cons|
|Your money grows tax-free and you can withdraw funds without paying income taxes in retirement||Low annual contribution limits|
|You can withdraw contributions (not earnings) at any time without penalty||Income caps limit who can use this account|
|Most brokerage firms make opening a Roth IRA a breeze||You invest with after-tax dollars, meaning you cannot deduct your contributions the year you invest|
#5: Build Up a High-Yield Emergency Fund
Risk level: Low
If you want to earn some interest with your $1,000 but can’t afford to lose any of it, then a high-yield savings account is your best option. These deposit accounts offer better interest rates than what you’d get from your local brick-and-mortar bank.
How It Works: These accounts won’t earn a lot of interest, but if they’re FDIC-insured there’s no chance of losing the money. You can also withdraw your cash at any time if you need it.
Where to Get Started: The CIT Bank Savings Builder Account offers one of the highest yields available with a savings account today. You can even get the highest rate with a $100 minimum monthly deposit, although a minimum balance of $25,000 also works.
Who It’s Best For: Most people need to have some emergency savings in the bank. Still, this account’s a good option for anyone who has $1,000 to invest but might need their money in the short term.
|High-Yield Savings Account Pros||High-Yield Savings Account Cons|
|CIT Bank has no hidden fees||Returns are lower than you’ll get with other investment options|
|You can secure their highest yield with a minimum monthly deposit of $100||CIT Bank requires you to keep $25,000 in your account or deposit $100 per month to secure its best rate|
|Access your money at any time|
#6: Build a Portfolio with Low-Cost ETFs
Risk level: Varies
Exchange-traded funds (ETFs) have made it so much easier to diversify your portfolio. This type of investment is similar to a mutual fund in that you can purchase many different stocks in a single ETF.
How It Works: ETFs let you purchase an assortment of stocks and other securities in one fell swoop. You can invest in ETFs with most of the major brokerage firms, and you can usually do so with low investment fees (or no fees).
Where to Get Started: M1 Finance is one of the best options when it comes to purchasing ETFs. This investing platform offers over 1300 different ETFs that you can trade for free, which is really an amazing deal. Read my full M1 Finance Review.
Who It’s Best For: Investing in ETFs can make sense for any investor. It’s even more beneficial for those with $1,000 to invest because ETFs let you diversify more than you could with individual stocks.
|ETF Investing Pros||ETF Investing Cons|
|ETFs typically have low expense ratios, and you may be able to invest or trade with no fees||Come with the same risk as other stock market investments|
|You can usually get started with a low account minimum (or no account minimum)||You’ll need to do significant research to find out which ETFs to invest in|
|Diversify your investments|
#7: Let a Robo-Advisor Invest On Your Behalf
Risk level: Varies
Robo-advisors are technology platforms that use science and advanced algorithms to make investment decisions on your behalf. Due to the popularity of robo-advisors, Deloitte believes the robo-advisor industry might have as much as $16 trillion in assets under management (AUM) by 2025.
How It Works: When you open an account with a robo-advisor, you typically start the process by answering an array of questions about your finances and your goals. From there, the robo-advisor uses computer algorithms to find the best investment options for your risk tolerance and your investment timeline.
Where to Get Started: I almost always recommend Betterment as my top choice among robo-advisors due to their user-friendly and intuitive interface, their low fees, and their suite of other financial products. You can open an account with Betterment with no minimum balance requirement. Learn more in my Betterment review.
Who It’s Best For: Robo-advisors are geared to investors who want help figuring out which investments will work best for their portfolio.
|Betterment Pros||Betterment Cons|
|Fees are relatively low; you’ll pay .25% per year ($2.50 per $1,000) on your invested balance||Fees required, which might not be the case if you invest on your own|
|Easy way to start investing if you’re a novice||You might not learn about investing if you let a third-party platform make most decisions on your behalf|
|Technology makes smart investing choices on your behalf|
#8: Pay Off Debt
Paying off debt is not usually what comes to mind when you’re thinking about investing your money but the stats don’t lie. Americans’ debt load continues to increase year over year and while your mortgage rate may be low and you’ve had some of your student loans forgiven, the interest that you’re paying on your other debt is killing your ability to accumulate wealth.
Even though $1,000 may not have a significant impact on whittling down the amount of debt that you have, it’s a crucial and vital step towards achieving financial freedom. I can’t express in words what it felt like when I finally paid off my student loans and credit cards that I had recklessly accumulated in school.
I can’t put a value on how free I felt.
Taking $1,000 and applying it towards your debt get you one step closer to feeling the euphoria of being debt-free.
#9: Invest in Yourself
I know it may sound cliche but investing in yourself will ultimately give you the highest ROI or return on investment I know.
The first time that I ever heard this expression I didn’t really understand what it meant. As I began the path of traditional investing and surrounded myself with other successful business-savvy entrepreneurs I started to finally understand what investing in yourself really meant.
Starting small could be simply buying a book or buying a $20 course on Udemy. A larger investment could be attending that conference that you’ve been putting off every year or maybe it’s signing up for that business coach that your peers have spoken so highly about.
I can attest that all of these have had an impact on my personal and financial success and all of which were less than $1,000.
The larger investments in myself were business coaching programs and also high-ticket courses.
Courses have been given a bad rap lately primarily because of money-hungry gurus that are all interested in lining their pockets.
Set aside a good amount of $1,000 or more for courses that you think are well worth the effort. I’ve even created a few courses myself that have received praise and admiration for the information and value that they provided. You can check out my two most recent courses “Passive Income Accelerator” and “10x Goals.”
#10: Beat Your Savings Account
Risk level: Medium
If you’re a buy-and-hold cryptocurrency investor with $1,000 of crypto in your account, you can use this option to earn more interest than you would in a traditional savings account. With a BlockFi Interest Account, you deposit your cryptocurrency and earn a rate of return that accrues daily and is paid out on a monthly basis.
How It Works: A BlockFi Interest Account offers up to 8.6% APY on your crypto deposits, yet the amount of interest you earn depends on the type of cryptocurrency you have. For example, Bitcoin is currently earning 6% APY, whereas the Gemini Dollar (GUSD) can net you the top rate of 8.6% APY. Note that there are no minimum deposits required to earn interest and that there are no hidden fees involved in your account.
Where to Get Started: You can head to BlockFi, which is the cryptocurrency platform that offers the BlockFi Interest Account. Open a new account and deposit your crypto, and you’ll be on your way to earning exceptional rates in no time. Note that, while interest accrues daily, you’ll only be paid interest once per month. Learn more about BlockFi.
Who It’s Best For: This type of account is best for crypto investors who planned to buy and hold already.
|BlockFi Interest Account Pros||BlockFi Interest Account Cons|
|No hidden fees||Cryptocurrency is volatile in general|
|No minimum balance to open an account or earn interest||Interest is only paid out monthly|
|Earn a better rate than you would with a traditional savings account||You might be charged additional fees, including fees for withdrawals from your account|
Your Investment Style
Before you dump $1,000 (or any other sum) into an investment, spend time thinking about your investing style. For the most part, your investing style is determined by considering:
- Timeline to invest
- Whether you need easy access to your money
- Appetite for risk
- General interest in learning about investing
If you want a third party to do most of the work for you, then there’s a good chance a robo-advisor, like Betterment, is what you need.
After all, Betterment charges low fees, yet uses technology to make smart investment decisions for you. You can open a Betterment account, set it up to be funded regularly, and (mostly) leave it alone. If you’d rather spend your time and energy on your career or your hobbies, going this route is a good choice.
That said, some people prefer the do-it-yourself option. This can make sense if you want to learn more about investing by being hands-on so you become a better investor over time. It’s also a sensible path if you just want to understand the inner workings of common investment strategies. If you think you’d be better off as a DIY investor, then investing in ETFs, managing a BlockFi account, or investing with Fundrise might be better options.
The Bottom Line
No matter how you choose to invest $1,000, know you’re taking an important first step. The fact that you made it this far in this overview tells me you’re serious about making a smart investment. You’re leagues away from most people who don’t bother with investing until it’s far too late.
But there’s still work to do to ensure you find the best investment option for your needs and goals. Decide on your investing style and research all the options I listed in this guide. With some time and planning, your $1,000 can be primed for growth in no time.