So you’ve saved up a grand and want to start making it grow. Is there a best way to invest your $1,000? There are several options, but most depend on how long you want to invest for, and the amount of risk you’re willing to take on. With minimal risk, comes minimal returns, so the greater the risk, the greater the possible return, it’s a double edged sword.
How long do you plan on investing for?
If the answer is short term, your best bet is something relatively low risk. That would mean things like CD’s, money markets, or bonds with short maturity dates. If you’re going to keep the money invested for at least 5 years you may want to try less risky stocks such as dividend based stocks (think utility companies as an example) as they’ll be more steady. If you’re planning on investing the money for longer than 10 years you could invest in riskier funds, or consider an index fund with more risk. A middle of the road low cost index fund would be something like Vanguard’s 500. In the long term, however, CD rates or money markets wouldn’t be to your advantage.
What rate of return do you want?
The time horizon you invest your money directly affects the rate of return you’ll make on your dollar. If you’re only parting with your money for a year or two, you’re going to expect fairly low rates of return. Longer periods allow for more risk, and thus more return. The only way you could get a high rate of return in the short run is through investing in a new business, or being a hard money lender for someone (much like payday loan companies). However, this carries a high level of risk, and you’ll probably have to advertise on a site like craiglist, or through word of mouth to find someone interested.
Are you going to be using the money for retirement?
If you’re going to be investing the $1,000 and want to eventually use it for retirement, the first thing you should do is see if your employer has a matching 401k program (that is if you haven’t made the $1,000 at work yet). Matching programs give practically free money to employees who participate so it’s a no brainer. If you’ve already made the $1,000 and it’s sitting in your bank account, or wallet, you may consider opening up, or adding to your Roth IRA, which will let your investments grow tax free until you retire. Without taxation on these funds your money will grow even faster.
Consider investing in yourself
Although it’s probably overused, the statement “investing in yourself is best” is really true. For $1,000 you could learn a new skill that could save you money, or make you more money through your earning potential. Advance your career by getting a certificate, take cooking classes so you’re not eating out as much, or invest it in making your home more energy efficient, which will save you money. You can buy a lot of education and books for $1,000. It may not directly show up in your bank account, but you’ll become more hire-able, and gain confidence by learning something new.
To sum it up, there really is no best way to invest $1,000. It depends on what your goals are and how long you plan on parting with your money.
Short term, think CD’s, Money Markets, and short term bonds.
Mid term, think lower risk dividend based stocks and bonds.
Long term, riskier growth based stocks.
