This article may contain affiliate links. I might earn a small commission if you make any purchases through my links and it comes at NO cost to you. For more information, please read my Disclaimer page.
You might be wondering, that $1000 is not much money when it comes to the big picture of financial freedom. If anything, how can it help in your journey?
For a lot of millennials, $1000 is the first step toward building their financial portfolio. Also, the majority of the folks out there underestimate the power of investing $1000 when you are just starting out.
To save you the anxiety and offer encouragement, 8 years ago after I paid off my student loans of close to $40,000, I started with a $1000 investment. My first stock investment was an Apple stock. In 2014, Apple offered a 7-to-1 stock split which means you get 7 stocks for every Apple stock you own. As those stocks continue to appreciate in value, your initial $1000 continues to grow in value.
So, if you come across folks who question and do not believe that $1000 is not much in the long run, take a moment and think again!
Now, let’s look at what you could do with a $1000 investment.
1) Invest in 401(K)
One of the most popular options to invest money is by using your employer-sponsored 401(k) plan. Most companies offer 401(k) as a benefit so this is the first investment option to consider.
So why should you consider this option to invest $1000?
If your employer is offering a 401(k) plan, your contributions are matched by the employer. The most common type of matching involves employers matching employee contributions up to a percentage of annual income.
For example, if your company matches partially (say 50%) for every 3% you contribute (which is $30 of the $1000), you will receive an additional $15 from your employer into your 401(k) account. Some employers offer 100% matching and in that case, you will receive $30 from your employer into your 401(k) account.
However, there are contribution limits set by the Internal Revenue Service (IRS) and for 2020, the maximum you can contribute under 401(k) is up to $19,500 annually. The employer matching amount does not count toward the $19,500 limit which works in your favor.
Check with your company’s HR and benefits specialist on how can invest $1000 toward your 401(K).
2) Individual Retirement Accounts (IRAs)
If you’d like to invest $1000, then you can start with IRAs. Investments within an IRA include financial products like stocks, bonds, mutual funds, ETFs, etc.
The two most commonly used IRAs are Traditional and ROTH IRAs.
Traditional IRAs
For the most part, traditional IRAs can be tax-deductible. This means that you can put money in the traditional IRA and deduct it while filing for your taxes.
The IRS will not charge you tax on the amount you put toward the traditional IRA account.
Upon retirement, when you withdraw money from this account, IRS will tax you on the amount you withdraw.
The age limit for avoiding the penalty for early withdrawal is 59 1/2. As of 2020, for a single person (or as the head of the household) with a modified adjusted gross income (as defined by Investopedia) of $65,000 or less, the IRA contributions are tax-deductible up to the amount of your contribution.
If you are married and filing jointly, the limit is $104,000 or less.
ROTH IRAs
On the flip side, Roth IRAs are not tax-deductible. This means that you invest in this account with your after-tax dollars.
The benefit here is that your contributions and investment growth are tax-free.
There is no tax on the amount of interest or profits you make on the invested dollar. Upon retirement, when you withdraw money from this account, IRS will NOT tax you on the amount you withdraw.
FREE Emergency Fund Tracker!
Life is full of surprises, so why not build an emergency fund that can help you when you need it the most. Learn how to build a $1,000 fund in 77 days.
3) Invest in College Education fund
Every parent would want to send their kids to the best colleges for quality education.
The problem?
Colleges are expensive and the top 30 colleges are one of the most expensive ones in the nation. According to Forbes, college tuition has been increasing at 5.2% on average every year. To put things in perspective, a 4-year in-state public college costs around $26,590 annually. If the costs continue to increase at the current pace of 5.2% per year, it would cost around $44,144 annually in 10 years. Let that sink in for a moment!
So, the sooner you start investing in your kids’ education fund, the better. The 529 college education plan is the most popular college savings plan out there. On average, your investment will return around 3%-4% per year.
One of the biggest investment advantages of the 529 plan is that the earnings grow tax-free and are not taxed when it’s time to withdraw. However, you cannot deduct the contributions from your federal income tax return.
If you invest $1000, that is a great start toward building the college fund and to take advantage of the compounding interest rate.
4) Invest in Blue Chip stocks
A blue-chip stock is one that has an excellent reputation and a huge market capitalization. These companies have been in business for decades, are considered financially sound and solvent, and dependable in terms of business continuity.
In addition, blue-chip companies are market leaders or one of the top competitors within their industry. Regarding dividends (money paid regularly to the shareholder from the company’s profits), there is neither a rule that every blue-chip company has to pay dividends nor that every dividend-paying company becomes a blue-chip stock.
Blue-chip stocks are considered one of the safest investments from a long-term perspective. While this is true, there is no guarantee. There are 3 types of stocks you can invest in depending on your risk appetite and You can invest $1000 to start with and slowly build your portfolio.
Some of the examples of blue-chip stocks are:
- Apple
- Amazon.com
- Microsoft
- Walt Disney
- Verizon
- Alphabet (formerly Google)
- IBM
- Pfizer
- Home Depot
- CVS Health
- Johnson & Johnson
5) Payoff your Student Debt
One of the best investments you can make in yourself is to pay off any student loans you have.
Student loan debt has been increasing at a staggering pace in the past decade. More and more students are graduating with higher student loans and struggle to save money.
According to Investopedia, there was a research study by The College Board in 2019, and here are the findings:
- Total outstanding student debt reached $1.4 trillion in 2019
- The average student loan balance per borrower also hit a record high of approximately $36,000
- 54% of students borrow money (get in debt) in the form of student loans and(or) pay for other college expenses
Think about the above statistics for a moment…
Right out of the gate, the college graduates are being set up for failure. The jobs out of college do not pay nearly enough to cover rent, food, car, insurance, student loans, and other necessities in life.
This leads to more borrowing through credit cards and it becomes impossible to save and invest your money.
So, if you have student loans, pay it off as soon as you can before saving for anything else.
FREE Emergency Fund Tracker!
Life is full of surprises, so why not build an emergency fund that can help you when you need it the most. Learn how to build a $1,000 fund in 77 days.
6) Payoff your Credit Card Debt
These days, the credit card issuing companies have less stringent rules giving the steep competition.
What does it mean for you and me as a consumer?
It means that we can get a higher credit line than what we are either looking for or can afford to spend. So, it’s a double-edged sword in that we get to use more credit but also have to pay the balance at the month-end.
A lot of credit cards have Travel, Gas, Shopping benefits linked to the reward points you accumulate. This means you can either get cash back or redeem the points to pay off your monthly balance.
There are a ton of benefits that come along with using a credit card, so be smart about using credit cards. It goes without saying, the higher your credit card usage, the higher your monthly balances you need to pay off.
If you are tracking your monthly usage and keeping it in line with your budget, kudos to you!
But, if not (and unfortunately, a lot of folks don’t track) you’ve got a problem! This is one of the common money mistakes to avoid in order to achieve debt-free living.
If the monthly payoff balance is higher than what you can pay, by default you will have to wait until you have enough money to clear the balance. The credit card company will add interest to your purchases (since you did not pay the balance when it was due) and now the payoff balance is higher.
And, this becomes a vicious cycle until you make full payment.
Instead, use your credit card wisely every month and don’t overspend. You’ll both enjoy the benefits and also build your credibility/credit score as time goes by and achieve your goal of debt-free living.
So, one of the best ways to invest $1000 in your financial journey would be to pay off your credit card debt!
7) Peer-to-peer (P2P) lending
Peer-to-peer lending is a fancy word for investing your money an earning interests. The concept is that instead of borrowing from the traditional banks, individuals borrow through peer-to peer lending.
It is basically an individual or a group of individuals who want to lend money (and earn interest) on it. There are requirements and criteria that need to be met in order for the lender (meaning you) to lend money to a qualified applicant.
In other words, it is similar to crowdfunding and offers great opportunities to invest and earn interest. The lenders are directly connected to the borrowers through P2P sites. In return, the lending sites charge fees and(or commissions) on the returns.
The lending rates vary from 6% to 36% and so many lending sites report rate of return for investors above 10%. If this option speaks to you, you can invest $1000 and experience the P2P lending space.
8) Create an Emergency Fund
If I were to ask you: Do you like surprises? For the majority of times, you would answer YES (depending on the circumstance and what’s on offer.)
But, if I were to ask you: Do you like surprises in the form of emergencies that will cost a fortune? Well, you know the answer (NO, of course!)
Given the very nature of emergencies, no one would willingly ask or wish for it. Yet, most of us ignore planning for it and creating a separate fund that can be a life savior in those difficult times.
I was guilty of doing the same until I got my act together, and consciously started setting aside money for emergencies. This is also one of the common money mistakes to avoid.
One of the best investments you can make for your life is to invest $1000 and start an Emergency fund and continue to grow that. Also, you can just open a money market account with your bank and earn some interest on that money as well.
9) Start & Invest in a Virtual Assistant business
If you’d like to make extra income on the side, you can invest $1000 and start a virtual assistant (VA) business. Given the changing landscape of the business world from brick and mortar to online, VA services are in huge demand. The biggest advantage is that you can hire a VA for services on an as-needed ongoing basis from anywhere across the globe.
There are countless small businesses that need someone to help them on an as-needed basis.
For example, if the business owner is busy with building a business, he or she is always going to need help managing emails, calendars, appointments and someone who can reply to emails.
One of the popular industries that require VA services is the blogging world. Experienced bloggers who are solopreneurs (business run by one person) require help to manage their email accounts, blogging schedule, standard email responses, course launches, etc.
Another way you can help a solopreneur is by managing their social media accounts. A small business might not have the manpower to dedicate someone to manage their social media presence.
You can easily earn $20/hour – $50+/hour depending on the skillset, expertise and work required.
Upwork and Timeetc are popular platforms for VA services.
FREE Emergency Fund Tracker!
Life is full of surprises, so why not build an emergency fund that can help you when you need it the most. Learn how to build a $1,000 fund in 77 days.
10) Start & Invest in your Youtube Channel
The latest trend in starting and building an online business is to be a Youtuber. A lot of folks have youtube accounts and instead of blogging/writing about their life experiences, they simply create videos to share that information.
With social media at our fingertips, it is extremely easy these days to snap a picture or create a video and upload it to one of your social media accounts. So, if you want to invest $1000 and start your online business, this is a good opportunity.
Also, you can create products and services that you can sell once you establish your presence in your niche. You can share your expertise and experiences on your Youtube channel and reach out to millions of folks across the globe to make an impact.
Now, let me be clear that is not about getting rich quickly but rather an option to invest in a side hustle that could potentially one day turn into a successful business. It takes time but if you continue to learn and consistently create quality videos, the odds of building a successful online business are in your favor.
Final Thoughts
As you can see from the list above, investing $1000 can go a long way. Even though it is not a huge amount to begin with, there are a lot of options available to invest and grow your money steadily.
Personally, one of my favorite options is to invest in a growth oriented blue chip stock. This ensures (but does not guarantee) that your investment is with a company that is an industry leader and financially stable.
I would highly recommend you do your research before you invest your hard-earned money in any of the options listed above. As with most things with money, there is always a risk associated with it. You need to determine the level of risk you’d be comfortable with for your peace of mind.
What has your experience been? How did you start investing? Please share your experiences, thoughts, tips, and ask away any questions in the comment section below!
Emergency fund first and foremost these days! But might as well have it somewhere that’s making some interest. Bank bonuses can be an amazing return on investment as well.
Absolutely agree Lindsay! Very important to have the emergency fund available especially these days. Thanks for sharing!