It’s 2021 and this year is going to be your year! You’re going to get fit, get a promotion and of course see your portfolio skyrocket in value! While I can’t help you with these first two goals, I can offer you some direction on how you can see that portfolio grow this year by sharing with you 7 proven ways to invest $1,000 in 2021!
Now, before we begin there is one thing that you must keep in mind when investing $1,000 or any money for that matter. All forms of investment come with risk and this means that while you could turn that $1,000 into $10,000, you could also lose it all so as a general rule, I recommend only ever investing money you can afford to lose. But if you are up for the investing challenge then here are 7 ways you can get started!
Method #1: Self-Managed Investments
With your first $1,000 in hand, the only person who will be deciding where this money is going is you. Well, if you're the do-it-yourself type, and you have some foundational investing knowledge then you can consider picking your own investments. Now, with this method of investing, there are a few considerations to keep in mind. First, you have to identify which online trading platform you want to use to facilitate your investing efforts. Second, you need to complete the administrative work to get your account up and running and finally you need to research the stocks you want to acquire and execute the trade.
Now, if this do-it yourself method sounds appealing to you then a few things I would consider are the following. Take the time to research which brokers you want to work with when executing your trades. This is one instance in trading where you can save or lose yourself money so take the time to research and choose wisely.
Another suggestion I usually give for new investors is that if you're going to be picking investments yourself using your $1,000, you might want to pick out some exchange-traded funds (ETFs). ETFs are known for their lows costs and diversification benefits and this may increase your initial investing success as you are just starting out!
Method #2: Lend It Out
If you want to invest into the lives of others and earn some interest, there's a new craze that's both exciting and reasonable: peer-to-peer lending. Peer-to-peer lending is the practice of lending to borrowers through an online service whose goal it is to bring borrowers and lenders together.
Now you probably have three questions in mind, how does this work, how much can I make and is it safe and that’s exactly what I was thinking when I first looked into peer-to-peer lending.
This type of lending is typically facilitated by a lending platform and this platform evaluates the risk investors face when they provide financing to individuals and businesses through their marketplace. In essence, you can see how the platform assesses the likelihood that you will be repaid and the higher the risk that a borrower may default on paying back their loan, the higher the interest rate they pay.
Now, returns can vary but if you decide to lend money on popular platforms like Lending Loop or Lending Club, you can expect net returns of 6.7%. And the good news is that you don’t need a ton of money to get started. Contributions as little as $25 can be invested which then get rolled up into the full amount of the loan being granted therefore your $1,000 will go a lot farther than you think!
Finally, is lending safe? Peer-to-peer lending is actually safer than you might expect. All the major platforms obtain key personal information from borrowers and monitor their repayment history but of course, there always exists the risk that someone defaults on their loan so like all other money making methods, there is risk involved.
Method #3. Give It To A Robo-Advisor
On one end of the investing spectrum, there are people who want to be totally hands on when it comes to which stocks they buy and how and where they move their money. On the opposite end are those who want to make their investing efforts as easy as possible and one way to streamline this process is to use a robo-advisor.
Robo-advisors are investment companies who create automated software designed to manage portfolios based on certain criteria. For example, when signing up for such a service, you might take a questionnaire to determine your risk tolerance level or investment goals.
Robo-advisors are very popular these days for a couple reasons. First, they typically have very low (or nonexistent) account minimums making the barrier to entry low enough for anyone to take advantage of this investing method. Second, they tend to offer very user friendly interfaces where you can get all the investing information you need in one platform.
Now, while I generally recommend robo-advisors for investing beginners, there are certain people that this method isn’t as well-suited for.
The first of those are investors who prefer human assistance. Some robo-advisors offer live assistance (which is usually part of a premium service), while others interact with you almost exclusively through the web. If you need hand-holding or a familiar voice to talk to, a robo-advisor is probably not for you.
Next, there are investors with multiple investment accounts. Some investors may need to coordinate company benefit packages and 401(k)s with other accounts, which makes automation offered by robo- advisors less suitable. Finally, there are the investors who need a customized investing plan. Robo- advisors won't offer customized planning or advice on how much to save, whether to use a Roth IRA or Traditional IRA, or how to allocate investments in other accounts, such as your 401(k).
Method #4: Invest In Your Children’s Education
If you have a child or intend on having kids at some point in the future then one thing that is probably on your mind is how you will finance their education. Every parent wants their child to be successful in life and one path many choose is going to college.
But, unfortunately, college is not getting any cheaper. In fact, the cost of college is increasing faster now than at any other time in history with tuition increasing by 5.2% for the last 20 years.
Now, if you’re like most parents and want your child to get a college education then now is the best time to start investing and it is another very reasonable way to use that $1,000 you have.
A 529 college savings plan is a great choice, as it has tax advantages that encourage individuals to save for college. These plans are state-sponsored, so be sure to check out your state's 529 college savings plan and see if it makes sense for you. In fact, investing $1,000 is a great start when using this type of plan, and depositing the money in such a plan will help you get the technical details of the account worked out so you can continue to contribute.
For example, you might be held back by the fear of the unknown. Making a decision to start saving for college today will make it much easier psychologically to invest tomorrow.
Now, I briefly went over this already but I want to stress it again that if you're going to contribute to your children's college education, it's wise to start as early as possible. The time horizon for these payments comes quicker than you would expect and investing sooner will reduce the stress of funding this large outlay and allow you to have the money you need when the time comes!
Method #5: Pay Down Your Debt
You might find this investment strategy surprising but think about it for a moment - having debt is the opposite of having an investment. The only difference is that holding onto debt is often more costly than investments are profitable.
For example, you might expect to achieve a 7% or 8% return in the stock market but with credit cards you pay double digit interest making the assumption of debt a lot costlier than if you were to use that $1,000 to invest with.
That's what makes paying down debt such a great investment idea. What you're really investing into is not having to pay lots and lots of interest. This is also why some financial gurus recommend paying down non-mortgage debt before investing for retirement. It's that important.
And, $1,000 might make a big dent in your debt. But if it doesn't wipe it out, you should truly focus on paying off your debt as soon as possible.
Something I preach when it comes to eliminating debt is to make sure it’s organized. You may choose to organize your debts from lowest balance to highest balance, or from highest interest rate to lowest interest rate. The former makes sense from a behavioral standpoint and will give you some quick wins while the later will save you the most money. If you still have good credit then you can take out a 0% balance transfer credit card and reduce your interest for 12-18 months while you pay it down.
Method #6: Start a Roth IRA
Want to invest that $1,000 wisely and get a tax break when you withdraw your returns? Well a Roth IRA allows you to do just that. As opposed to a 401K where your contributions allow you to avoid tax in the current year as a form of tax deferral, a Roth IRA will allow you to withdraw from the plan tax free meaning that whatever amount you have in this account is yours to keep.
That's a good thing for many, many people. The other reason is you have a lot of control over your money with a Roth IRA when compared to your employer-sponsored retirement account. Those are two great reasons to start a Roth IRA. But let's not forget the main reason you should start one: it's important to save for retirement!
For many people, they do not have pensions to rely upon in their golden years which is why you need to start investing early in order to build up a nest egg that will support you during this time.
Method #7: Invest in Real Estate
I know what you’re thinking, how can I possibly invest in real estate with just $1,000? Houses cost much more than that! Well, that’s because when most people think of real estate investing, they think of renting a house or office space. That’s the most common type of real estate investing, but not everyone wants to have the day-to-day duties of being a landlord or managing the spaces.
A REIT or real estate investment trust involves buying into private real estate as a partial owner. You can think of a REIT as a mutual fund for real estate investing and like a fund, the way you own it is through buying stocks. You see, when you own stock in a REIT, you earn a share of the profit produced by that real estate investment. It’s a way to invest in real estate without the hassle of being a property owner and every time profits are shared, you will receive your portion of the cash distributed and the best part was that there was no property maintenance, no dealing with tenants and no chasing rent payments required!
If investing in real estate appeals to you but you have yet to accumulate enough money to buy a physical property on your own then I highly recommend placing your $1,000 in a REIT.
There are dozens of ways you can get started in a REIT, but the easiest is through Fundrise. With just $500 (only half the money you have to invest), you can make an initial investment. You can use their starter portfolio which will put your money into several different REITs and give you instant diversification.
And there you have it, 7 proven ways to invest $1,000 in 2021!