You may be tempted to write off rich people’s success, attributing it to inherited wealth, connections, or sheer dumb luck, but that is simply not true in most cases. Many people who are affluent now started from nothing, and made their money through wise investments.
The good news is that you can do that too, especially with good financial advice. In this guide, we will give some suggestions on how to invest $1,000 wisely, with great returns. However, you should keep in mind the fact that you shouldn’t invest any more money than you are comfortable losing!
Choose Your Investment Vehicle
Exchange-traded funds: These funds, abbreviated to ETFs, have become quite popular in recent years, which is a great success, especially considering they were only introduced about 20 years ago. The ETFs can be bought or sold at an exchange during any trading day. ETFs hold a diversified portfolio of assets such as technology stocks, or a representation of the overall stock market.
These funds offer a few benefits. Firstly, they make sure you haven’t put all your money in one basket, since the portfolio managers diversify the investment among many different stocks. Secondly, the management fees are not particularly high, especially compared to actively managed funds.
Mutual funds: Though people usually invest a lot more money into mutual funds, that is not to say that it is impossible to invest $1,000 in them. For most retirement mutual funds, the minimum investment just so happens to be $1,000, so you should be able to do it quite easily. They are easy to set up and manage, especially for a beginning investor.
There are several advantages to mutual funds, depending on your goals. Firstly, mutual funds also expose the investor to a broad swathe of carefully picked stocks, which diversifies your investment automatically. Secondly, if you intend to keep investing after your initial $1,000, then mutual funds are the best option, since the returns are better for larger and regular investments.
Certificates of deposit: These are the safest investments available to most investors, since they are insured by the Federal Government (the Federal Deposit Insurance Corp, to be more specific). Therefore, it is next to impossible to lose money on a CD, since whatever you lose will be reimbursed by the government. However, since there is no risk, the returns are small as well. In fact, the highest yield among CDs is a bit less than one percent annually.
These are great for beginners, since there is no risk, and even the small return you get is better than having your money sit beneath your mattress. Furthermore, many banks do not even charge penalties from withdrawing money early, so you will most likely be able to get at your money quickly if you happen to need it.
However, CDs are not going to make you rich. Most economists suggest taking on some risk, especially for young people. In fact, a commonly cited formula for investing is that you should subtract your age from 100, to find out which percentage of your money should be invested in items with a bit of risk, and the rest should be kept safe. For instance, if you are 25, you should invest 75% of your funds available for investment into items with a bit of risk.
Another good piece of advice is to invest in the stock of well-known companies. These are considered relatively safe investments, since many of these are simply too big to fail. Therefore, you should invest in a company you know well and believe in, so that you can anticipate price fluctuations. For instance, if you are into tech, you might want to consider investing in Google or Facebook, or other notable tech companies.
Finally, if you are investing, why not simply invest with the best? Warren Buffet is considered the greatest living investor, so investing in his company, Berkshire Hathaway, is a relatively safe bet, based on his long history of great investments. In fact, Buffet may even be able to beat the market, which is the goal for all investors, so you can benefit from that too!
Whichever of these options you choose to go with, you have to keep one very important thing in mind. Don’t invest without having done through research into the company and industry you are investing in. A successful investor must do their homework!