Top 5 Ways to Invest Your First $1000
1. Invest in Index Funds.
The stock market is one of the best places to invest your money, but you may not understand how to value stocks, what stocks are worth purchasing and how to effectively diversify a portfolio to avoid losing money.
Index funds are prepackaged bundles of stocks that track a particular segment of the market. Many index funds track the S&P 500, which is an index that’s widely considered to represent the health of the economy of the United States as a whole.
Index funds offer novice investors an easy way to build a portfolio quickly with expert assistance. They frequently require lower fees when compared to other types of mutual funds because they are not actively managed by a team of investors and financial advisors.
2. Invest in Property.
Many young adults who rent believe that they should buy a home as soon as possible. After all, if the price of rent and a monthly mortgage are comparable, why not own the property? Unfortunately, the rent vs. buy debate is about more than just the monthly mortgage price. Owning a home is a significant investment and one that should not be taken lightly.
For example, when you live in an apartment, you can call your landlord up to handle expensive home issues. A $4,000 furnace that dies in the middle of the winter is the landlord’s problem when you live in an apartment. When you own the home, there’s no one to call except the local heating repair company. Learning more about the true costs of home ownership can help you understand if you’re really ready to buy.
3. Buy Fractional Shares of a Stock or ETF
You don’t have to buy full shares of a stock or an ETF these days. If you want to be more hands-on with your investing but can’t afford a lot of stock, consider fractional shares. This is when you buy a portion of stock for a fraction of the price. For example, if you want to buy Netflix shares, but can’t afford $500 to buy one share. You can invest $20 instead and buy just a little bit of that one share. With fractional shares, you still own a portion of the company.
4. Improve Your Skills
Most people don’t think of improving their skills as an investment. But as a young investor, that can actually be one of the very best investments you can make. After all, the income you earn over your lifetime will be your single greatest asset. The more you can increase it, the more valuable it will be.
Plan to invest at least a small amount of money and time in acquiring any skills you need in your career. You may also think about skills you want to add to prepare you for either a higher paying job or even for changing careers later on.
You can take additional college courses, order online courses, or enroll in various programs that will add to your skillset. Sure, it will cost you money in the short run. But if it will increase your income substantially in the future, it’ll be some of the best money you ever spent. And that’s an investment in the truest sense.
5. Let a robo-advisor invest your money for you
Robo-advisors entered the investing scene about a decade ago and make investing as simple and accessible as possible. You don’t need any prior investing experience, as robo-advisors take all of the guesswork out of investing.
Robo-advisors work by asking a few simple questions to determine your goal and risk tolerance and then investing your money in a highly-diversified low-cost portfolio of stocks and bonds. Robo-advisors then use algorithms to continually rebalance your portfolio and optimize it for taxes.
There’s no easier way to get started in long-term investing. Most robo-advisors require just $500 or less to start investing and charge very modest fees based upon the size of your account. All offer automated investing plans to help you grow your balance.
If there’s any downside to Robo-advisors it’s cost. Robo-advisors charge an annual fee equal to a small percentage of your balance. The industry average is about 0.25%. So, if you invest $10,000, you’ll pay $25 a year. That’s not a lot of money, but it begins to add up if you amass hundreds of thousands of dollars.
It’s important to note that robo-advisors fees are on top of the fees charged by the exchange-traded funds (ETFs) that robo-advisors buy to make up your portfolio. You can avoid paying the robo-advisor fees by building your own portfolio of ETFs or mutual funds. For the vast majority of investors, however, that’s a lot of additional work and responsibility.
The bottom line? Robo-advisors are cheap and well worth it.