When you want to start investing $1,000, there are plenty of things that you can try. Here’s our idea of what to do when you got $1,000 to invest.
Why Is it Important to Let Money Work for You?
I can imagine that this question would pop up in your head. It’s important because $1,000 today will not be worth $1,000 in the future.
If you’re not investing your money, $1,000 today will be worth less at this time next year – thanks to inflation.
If you’re investing your money, there’s a big chance that your $1,000 today will be worth more at this time next year. When you invest, you let money work for you and hopefully earn you income.
If you put $1,000 away today in an investment account and you don’t touch it for 30 years, how much do you think it will be worth? With a historical average return of 7% on the stock market, your money will be worth $8,165. If you put $1,000 away every year for 30 years, it will turn into $110,511. That’s a lot of money!
5 Simple Steps to Start Investing Your $1,000
1. Save Some Money
One of the most important things to do to start investing your first dollar is to save some money to get started. If you’re not sure how to do it, I recommend paying yourself first. That way you can save some money for your financial goals. Whether that goal is investing, saving for a specific goal, or building your emergency fund.
Through the method of paying yourself first, you can make sure that every month a specific amount of money is reserved for that goal. Try to maximize this, so that you can invest an optimal amount of money into the stock market.
The best time to start investing was yesterday, the second-best time is today!
If you’re just starting out, I would recommend saving just as much money as you can. Maybe that’s $100 per month, maybe that’s $25 per month. It’s all fine.
If you’re from the US, you may want to look into Acorns. Acorns is an app that rounds up the purchases you do with your credit card or debit card and invests that money for you. Acorns automatically invest for you, which is amazing! You can set up the app in under five minutes.
2. Do Your Own Research
This part is very important! Do your research when investing. Don’t think: Google had a +20% return over the past year, which means I should buy it. Or: I like my MacBook, I think I should invest in Apple, they make products I like.
Before you start putting your money towards the stock market, know what you’re putting your money towards.
3. Open an Investment Account
When you’re ready to open your investment account, choose your strategy wisely. The best you can do in my opinion is to open an account with an online broker. You can also find someone to manage your investments for you, but their fees are mostly way higher.
There are a lot of brokers you can choose from, my favorites are:
- Vanguard – They are my absolute favorite!
- M1Finance – A US Robo-advisor/broker with no trading fees, no account fees, and you can start investing with any amount!
4. What Do You Want to Invest in
After that, decide what you want to invest in. You can choose to invest in stocks, bonds, or ETFs.
How much stock or bond allocation you take is up to you, depending on how much risk you want to take. Do you want to go for higher risk? Focus more on stocks. Do you want to go for a lower risk? Focus more on bonds.
Most of the time the rule is that the sooner you need your money, the less risk you want to take. If you invest over a longer period of time, the ups and downs of the stock market will more likely be evened out.
Investing in individual stocks or bonds is not the easiest, because it’s hard to know what exactly is a good investment and what’s not. That’s why I personally invest in ETFs. ETFs are Exchange Traded Funds, which means that you can buy a group of stocks in any specific area. You can ETFs for oil, gold, S&P 500, or even the entire world!
What I’m doing, is investing in an ETF that focuses on the entire world, so that you have over 5,000 companies in one single stock. How amazing is that?
Here are a couple of popular funds that you may want to check out:
- VTSAX vs VTSMX – which are both total stock market index funds, issued by Vanguard.
- FZROX vs FSKAX – which are two total market index funds, issued by Fidelity.
- IVV vs VOO – which are both S&P 500 trackers, that give you exposure to the biggest companies in the US stock market.
5. Check-In Once Per Month
Yes, you have invested your money, well done!
Now it’s time to check what you have invested in. I would recommend not checking it too often, but once every month would be recommended. If you want to change your portfolio, put more money in it, or plan to withdraw money, you might want to check it a little more often.
After you’re done with that, you can repeat the cycle. Honestly, the most important thing is to just start! As soon as you dive in, you will get familiar with the process and it will get easier.
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This post was produced by Radical FIRE and syndicated by Wealth of Geeks.
Featured Image Credit: Shutterstock.
Marjolein is the founder of Radical FIRE. She has a finance and economics background with a master’s in Finance. Radical FIRE is a personal finance blog that helps you live your dream life through making more money and investing. We want you to reach your financial goals and have fun while doing it!