When you have $1,000 or less to invest, there may seem to be only a few options. But the good news is some of the wealthiest investors in the world started somewhere. And though it doesn’t get a whole lot of publicity, there are actually numerous options available for your small amount of money. We list the best way to invest that $1,000 and make it grow into a bigger nest egg.
But before we get into the investment options, it’s important to realize there are some caveats to investing when you’re just starting out.
Make sure you’ve checked off your other financial goals before investing money into the stock market. Here are some points to consider first:
- Little Consumer Debt — You should be relatively debt-free.
- Diversify — For the amount you are starting to invest, aim for as much diversification as you can so you minimize the possibility of being wiped out by a single investment.
- Fees Matter — Watch out for fees. You should not pay more than 1% in investment fees annually.
- Create Regular Savings — $1,000 should be your starting point only — have a plan to make regular monthly contributions.
If your finances are in good shape, and you’ve completed this financial checklist, let’s move on to where to start invest your money.
1. Start with Acorns
You don’t have to begin with large amounts when first starting off. In fact with Acorns you can start investing with pennies.
Acorns is a somewhat a unique investing app which takes your spare change from every purchase you make. When you buy your favorite chicken burrito at Chipotle for $6.50 Acorns will round up to $7.00 and invest $0.50 from your checking account. Acorns can do this with every purchase you make. As you can imagine, this can start adding up very quickly.
It’s an easy and painless way to start investing with very little money. In fact, we recommend Acorns as our best microsavings service.
Acorns makes the service simple and does the investing heavy lifting for you. The service costs $1/month when you have under $5,000 and 0.25% per year after that.
We recommend using Acorns as the start of your emergency fund.
The Acorns app provides a painless way for newbies to begin saving and investing by "rounding up" their spare change and "micro-investing" the difference. However, it isn't built for long-term saving (although it is introducing a new IRA service) and charges hefty fees.
- Painless Way to Save
- Hides the Complexities of Investing
- Start Investing With No Money
- Free for College Students
- Only for "Boosting" Your Savings
- Can Lose Principal
- High Annual Fees
2. Use Betterment for Retirement Planning
Acorns is great for someone just starting and setting your money away for a rainy day. But what about planning for retirement? If you are ready to get more serious you are best off with Betterment. Just like Acorns, we recommend Betterment as the best robo advisor.
Betterment determines your risk tolerance and then builds a portfolio of exchange-traded funds (ETFs) that are consistent with that tolerance. The entire service is automated, which means you invest your money and let the platform handle it for you. There’s no trading and no rebalancing; Betterment handles it all on your behalf.
There’s no account minimum with Betterment. Your fee will be 0.25% of the account balance per year. This will enable you to accumulate a steadily larger balance without having to pay ridiculously high fees.
Betterment is the perfect a retirement account since it offers a combination of professional management, diversification, low fees and no account minimum.
Betterment is the best robo advisor platform for beginning investors, with no minimum deposit and low fees... in-depth retirement tools and effective asset allocation... plus, it's possible to receive assistance from human advisors.
- Simple Asset Allocation
- Low Management Fees
- Perfect for Young Investors
- Tax-Coordinated Portfolio
- RetireGuide Calculator
- Not the Best for Higher-Net-Worth Individuals
- Cannot Asset-Allocate With External Accounts
- No REITs or Commodities
3. Open an Account with Motif
If you’re more adventurous when it comes to investing, Motif Investing could be the best choice for you. Motif is based on creating mini-mutual funds, called motifs. But these aren’t your grandfather’s mutual funds. The motifs are unconventional conglomerations of up to 30 stocks or ETFs.
The motif is typically based on a very narrow concept, such as solar heating in China or organic restaurants. The platform has more than 150 motifs offered by the site, but thousands more are created by participants. Or for the adventurous, you can create your own.
For $9.95 and a minimum of $250, you can invest in a single motif. With $1,000 you could invest in four of them (allowing of course for the $9.95 fee for each). The beauty of Motif is for very little fees you can be diversified into a mix of up to 30 funds.
Motif is a competitively priced stock broker that creates investing "themes" to diversify your portfolio. However, since it offers mostly rudimentary features, experienced, active traders might find it lacking.
- Easy Way to Diversify
- Low-Cost Trades
- Custom Motifs
- Cheap Single-Stock Trades
- No Automatic Dividend Reinvestment
- Lacking Social Features
- No Complex Orders Available
4. Open a Traditional or Roth IRA at an Online Broker
Betterment and Motif aren’t the only options available with retirement accounts. Both services do package investments up neatly and in a cost efficient way for someone with just $1,000 to invest.
Though if you want to do it yourself, open an account with an online brokerage firm. We’ve done the research already and have a list of the online brokerage firms.
When you open a Traditional or Roth IRA, there are typically no account minimums required. You can open an account and begin investing money once you have a sufficient amount available that you feel comfortable investing it.
You can open an IRA at a number of brokerage firms. For example, you can open an IRA at E*TRADE with no minimum account balance. And there are plenty of other firms that will allow you to do the same thing.
Once you have at least $1,000 in an IRA, you can consider investing in diversified funds. For example, the Vanguard Target Retirement Funds not only has a $1,000 minimum balance requirement, but you purchase the fund based upon expected year of retirement. Assets within that fund will be consistent with your retirement time horizon.
To sweeten the deal, we have a list of all of the available IRA promotions. In some cases, you can not only get free trades but cold hard cash. Not a bad return on your money without risking a cent in the stock market.
5. Buy U.S. Treasury Securities
If you are a more conservative investor, you can invest in U.S. Treasury securities through Treasury Direct. They might be boring, but boring is sometimes good. You can invest in a variety of U.S. government securities with as little as $100.
Treasury investments available include:
- Bills (maturities of less than one year)
- Notes (maturities from two to 10 years)
- Bonds (maturities of 30 years)
- Treasury Inflation Protected Securities, or TIPS (maturities of five, 10 or 30 years)
I-Bonds are particularly interesting because not only do they pay regular interest, but they also make periodic additions to your principal to cover inflation. The adjustments are based on upward changes in the Consumer Price Index (CPI). You can earn interest tax deferred while owning them and tax-free if used for higher education.
6. Open a Taxable Account
You can also invest in a variety of brokerage accounts. With $1,000 your investment options will still be limited, but opening an account is an excellent way to start. And there are plenty of options if you choose to go this route.
Fidelity will allow you to open a brokerage account with as little as $2,500. Stock trades are $7.95 per transaction.
With TD Ameritrade you can open an account with no minimum balance. Stock trades are $9.99 per trade with TD Ameritrade.
Since a single transaction fee of $9.99 will represent 1% of your $1,000, you’ll have to be careful not to trade too frequently. These accounts are best used for buying stock in one or two companies that have consistent investment performances.
7. Open A Bank CD
If putting your money into investments that have risk of principal is something you’re not comfortable with, you can always opt to keep your money in your bank. Though right now the returns are small, they’re the best places to start building a nest egg. If nothing else, you’ll never lose money on the investments you make.
Since checking and savings accounts pay close to nothing, you can begin investing your money in certificates of deposit (CDs) that tie up your money for a time but offer higher interest rates. For example, you can choose to invest $1,000 in a one-year CD that pays something close to 1% interest. During the year your money is tied up, you can make regular contributions into a money market account to increase your nest egg.
You won’t get high returns on your money, but you will get valuable time — and safety — to accumulate a larger amount of money for more significant investments later. One bank that offers competitive rates is Discover. Discover bank offers 1 to 10 year bank CDs. Their rates are competitive and do offer IRA CDs as well.
Note: Annual Percentage Yield (APY) is accurate as of 3/13/2017. Applies to personal accounts only. Fees could reduce the earnings on the account. Rates may change at any time without prior notice, before or after the account is opened. No minimum balance to open.
Beginning an investment portfolio is a major step, whether it’s with a million dollars or just starting $1,000. That first step is getting started, even if it involves a relatively small amount money. Once you start the investment process, the combination of regular contributions plus investment returns will ensure a prosperous future.
You don’t need to wait until you have many thousands of dollars before taking the first step. Use these options to get started investing with as little as $1,000 today.