The Young Money Club

So you’ve finally done it, you’ve been saving up for a while and now you’ve got your first $1,000 ready to invest. But where do you start? You can’t buy any rental properties or major assets, so where can you invest your money?

This is where most people give up, they spend their savings on that new phone they’ve been wanting or a trip to PCB with their friends. I’m here to hopefully give you some pointers on how to invest your first $1,000 so that it will benefit you in the long run.

Get Financially Stable

First things first, it’s best to be sure that you’re financially stable enough to begin investing. Simply having $1,000 isn’t necessarily a good reason to start investing.

I would first recommend paying down any debt you might have as well as accumulating a decent amount of savings before investing in anything. This ensures the safety of your investments while keeping you on top of any debt you might have.

Invest in Yourself

Investing in yourself can easily offer the best ROI out of any investment. Learning a new skill, information, or ability can endow you with unlimited potential to earn money or create value from little to nothing.

Robert Kiyosaki, renowned investor and author of Rich Dad Poor Dad, has said that a few of the seminars/classes he has taken have made him millions in the long run. A small investment of a few hundred to 1000 dollars could net you much more in the long run by investing in yourself.

Start Investing for Retirement

It may seem like too early to start saving for retirement, but the earlier you start, the easier it will be for you to save and the more prepared you will be.

The more time you can give your investments to grow using compound interest the more money you’ll have when you’re ready to retire.

My recommendation for this one would be to open a Roth IRA account with your preferred broker (I use Fidelity but do your own research). This is a retirement account with incredible tax benefits.

The Roth IRA allows you to contribute a limited amount ($6000 in 2019) each year to invest. The thing that makes this account special is that you don’t have to pay any taxes on your earnings until you withdraw. Depending on your age this gives you roughly 40 years to compound your earnings without having to worry about taxes at all.

Index/Mutual Funds

If you don’t know much about investing in the stock market, an index or mutual fund is probably your best bet. These funds are made up of many different individual stocks that automatically diversify your investment.

Index funds are meant to follow benchmark indices such as the S&P 500 or the Russel 2000. These are typically passive and not actively managed because they’re comprised of preselected stocks that are meant to closely track their underlying indices.

Warren Buffet is a large supporter of index funds and even recommends that most people use them if they don’t want to learn how to invest. As an example, if you would have invested $10,000 in an index fund back in 1942 it would be worth close to $50,000,000 today. Wild right?

A mutual fund is a similarly structured investment, the primary difference between the 2 is that a mutual fund is actively managed. That means they charge a small management fee to invest your money in a variety of investment vehicles like stocks, bonds, and other securities. There are different types of mutual funds with different risk levels, so you can choose one that aligns with your own investment goals.

Become a Lender

Sites like Lending Club and Prosper essentially transform you into a one-person bank. You can lend money to small businesses or individuals in need of a loan. You earn money as the lendee pays back the loan with interest.

Both platforms require just a $25 minimum investment per loan. So you can diversify your $1000 across multiple different loans to minimize your risk.

Becoming a peer-to-peer lender is a little higher risk than some other investments but with higher risk also comes higher returns. This wouldn’t be my 1st choice as an investment but if you’re looking for a second, more risky investment, this might be a good option for you.

Dividend Investments

This is one type of investing I have recently begun to dip my feet into. It’s slightly different from the previous ones because it can earn you money in 2 different ways.

Similar to most investment funds and common stock, you can earn money by the share price increasing. This is good for long term investing but you won’t receive any real return until you sell your shares.

This is where the 2nd way to earn money, called dividends, come in. A dividend is a small portion of a company’s earnings that are paid out to shareholders. Dividends can be paid out by individual companies, various types of funds, and REITs (real estate investment trusts).

These typically have varying rates of dividend payments along with varying amounts of risk. Like most investments it’s important to ensure you’re properly diversified in order to minimize risk. How you do so is up to you, but it can be done through buying shares of multiple different companies or a prediversified fund.

Dividends can provide you with residual income for as long as you own shares. Dividend payments are most commonly paid out quarterly, but with varying payout dates, investors can create portfolios that pay out every month.

Conclusion

Regardless of how you decide to invest your first $1000, the important thing is that you actually DO. Taking the leap and getting your money to work for you is the first and most important step.

Having your money sitting in a bank or in a drawer won’t do you any good. The sooner you can start investing the more time you’ll give your money to grow and the more financially secure you will be in the future.

If you don’t have $1000 yet or are in search of ways to make money to invest, you can check out our last article “15 Best Side Hustle Ideas You Can Start Right Now“