You've probably heard that investing is important. You've probably heard that investing is the best way to grow your money over time. But what exactly is investing and how do you get started?
According to the dictionary, here is the definition of investing.
Investment:spending money with the expectation of achieving profit or substantial results by investing it in financial instruments, shares, real estate or by using it to develop a commercial enterprise.
Basically, the goal of investing is to tie up money, and in turn, that money will grow. However,Investing involves risk. If you do not have your money in your own bank account, there is a risk of loss. With some investments the risk is low; in others it is loud. The higher the risk, the more it is better to earn for taking that risk.
Honestly, you canstart investing with any amount, even $5. But when you invest with just $5, it's hard to have many options to grow your money. And even if you see a 100% return on your investment, that $5 to $10 will only grow. While that's impressive, it's still not a lot of money.
So let's talk about ways to start investing with $1,000. $1,000 is a good amount to start with because you want to minimize costs and still see a decent return in dollar value. Here are some ways to start investing:
1. Stocks, mutual funds, ETFs
The most traditional way to start investing is by investing in equities: shares, mutual funds or ETFs that consist of shares. It's what you hear about on the nightly news: the stock market is going up or down.
The reason most people think stocks are the best choice is because stocks have averaged a 7% return over the past 60 years. It is much higher than other investments, while being less risky. However, the risk still exists – and investing in individual stocks is risky because the individual company could go bankrupt.
That's why it's important to look for:
- INvaried portfolio, investment fund or ETF to invest in that minimizes risk
- Low or no fees to invest or open your account
- The lowest possible expense ratio for your investment fund or ETF
If you want to start investing, we recommend opening a Roth or Traditional IRA atM1 Finance. M1 Finance is one of the first truly free investment platforms. You can build your entire portfolio and invest for free.Se M1 Funds her.
Here are some otherschoice for real estate agenciesto open an account.
2. Bonds and government bonds
The second most common way to start investing is by investing in debt. It sounds scary, but that's what bonds are, and they're incredibly common. Maybe you havegot savings bonds as a childand savings bonds are investments in debt issued by the U.S. government.
You can think of investing in bonds as lending money to the government or a company, and in return they pay you interest. Government bonds are very 'safe' because they are backed by the US government. They also pay very little to keep them. Corporate bonds pay more interest, but are riskier because, like stocks, the company can go bankrupt.
There are many ways to invest in bonds and government bonds, but the two most common ways to invest are:
- Directly through the US Treasury Department atDirect Treasury
- Through your brokerage, either by buying individual bonds or, more often, by investing in a bond fund or ETF
3. Invest with a robo-advisor
If #1 and #2 sound a bit confusing to you, then investing with a Roboadvisor could be a good choice for you. A Roboadvisor is an investment management company that automatically allocates your investments between stock and bond ETFs. Unlike a traditional financial advisor, computer software does much of the work.
The result? More automation, fewer costs and easier access to your money when you need it.
The most popular Robo-advisors are:
- The prosperity front-You can start investing here from €500.
- Improvement- You can start investing here with $10, but they charge 0.25% (digital) - 0.40% (premium).
Check out our full list ofbest robo-advisors.
4. Stock options
Stock options are a riskier way to invest in the stock market because, unlike real shares, they are contracts that allow you to 'buy or sell' a stock. You can buy calls, which are options that expect a stock to rise in price, or puts, which are options that expect a stock to fall in price.
Investing in options can get very complicated because you can create different spreads that allow you to target certain prices and events on a stock. At the same time, options are very popular because you can invest in stock options with very little money and get great returns.
If you are considering investing in stock options, we highly recommend itSchwabstart. They have an options platform calledthinker swimmer, one of the best options trading platforms available to investors at no additional cost.
Check out our full list ofthe best places to shop here.
Remark:Stock options are different from stock option compensation. If you have stock options as part of your compensation package, please visitSharebeeto understand your investment choices.
5. Real estate
Real estate is a popular way to get started investing, but historically you had to have a lot of money to get started. However, in recent years, a new way of real estate investing has emerged, with the entry limit being reduced to just $1,000.
Real estate crowdfundingThis allows you to join other investors and pool your money to invest in real estate - similar to peer-to-peer lending. The great thing about this is that there are low minimums: depending on which platform you use, you can invest as little as $1,000 and own a property. You also don't have to be an accredited investor to get started; everyone can do it.
We recommend the following for investing in crowdfunded real estate:
- Fundraiser-Fundraiseris a real estate investment trust that allows you to invest in a basket of real estate properties for as little as $500. It's a great way to get some exposure to real estate.Read more about Fundrise here.
- Real EstateMogul–Real EstateMoguloffers investors a variety of properties to choose from, including residential, mixed-use, commercial and retail. They do not charge fees to their investors, but instead place the burden on the property owners. Investors can see returns just a few weeks after the project is financed.Check out RealtyMogul here.
Are you curious about more options?compared all major real estate crowdfunding sites here.
6. Precious metals
Another way to start investing is by investing in precious metals. Investing in gold and similar metals has very mixed reviews: some people are strong believers in them, while others are very anti-precious metals. Both views have some value.
The argument for investing in precious metals is that metals are tangible and retain their value. Thatagainst investing in goldand precious metals claim that gold has no commercial value and pays no dividends - it's basically a rock sitting in a vault somewhere and you hope other people will pay more for it than you.
So what do the facts say? Over the past 30 years, the gold price has risen by 335%. At the same time, the Dow Jones Industrial Average is up 1,255% – almost 4x more. As you can see, it's not a bad place to park your money, but in the long run you won't earn as much as stocks.
That's why gold should be viewed more speculatively: you expect people to panic and the price of gold to rise. Just remember that.
So where do you invest in gold and precious metals? The most common ways are:
- Purchase a gold or precious metals ETF from your brokerage firm
- Buy physical gold, such as gold coins, directlyAmerican Mint
- Buy from gold and precious metals brokers such asApexofThe safe
7. Raw materials
Commodities are tangible things that you can invest in through futures. Common commodities to invest in include oil and natural gas and agricultural products such as corn, livestock, soybeans and more.
When you invest in commodities, you are counting on supply and demand to drive the price of the commodity higher than what you paid for it. Normally you buy a futures contract, which fixes a price. If the market price is higher than your future contract, you make money.
The most common way for investors to invest in commodities with as little as $1,000 is through ETFs or ETNs. These are traded on the stock market. Here's onelist of ETFs and ETNs that invest in commodities.
Cryptocurrencies also fall into the realm of commodities. You could look at buyingBitcoin,Litecoin,Ethereum,or countless other altcoins.
See ourslist of the best cryptocurrency trading platforms.
8. Lending money to others
Another popular way to invest $1,000 is to lend money to others. This can be risky, because now you are not only counting on companies, but also on individuals to pay you back with interest. But there are platforms that allow you to do this easily, and by spreading small loans as small as $25 you can minimize the risk of default.
This probably shouldn't be the first way you invest, but it's a good option once you have a solid portfolio.
One of the most popular ways to borrow money at the moment is through home loans. Check out these options:
- Peerstraat: You can borrow money to finance repair and turnaround projects on their platform. Read ourPeerstreet review here.
- Ground floor: This is a competitor of Peerstreet that also offers peer-to-peer lending. Read ourGround floor review here.
9. Certificates of Deposit
Certificates of Deposit (CDs) are among the oldest forms of investing. They are very safe investments, but provide a much lower return than other investment options. CDs are offered by banks in the same way as bonds. You agree to lend your bank money for a certain period of time, and they pay you a fixed interest rate on the loan.
The two most common ways to invest in CDs are:
- Directly through your bank or credit union. Normally you open a new account for the CD.
- Through a brokerage that has connections to various banks and credit unions across the country. This can usually give you a higher return because you shop around.
We keep a list ofthe best CD prices here, or you can check out ourfavorite CD at CIT Bank.
10. Collectibles
A much less common way of investing, but still feasible if done right, is investinginvesting in collectibles. This is one of those very high risk, but potentially high reward areas.
Collectibles can contain anythingart, to coins, to comics and more. Almost anything can be a collectible if it is rare and other people want it. Some of my favorite "random" collectibles are vintage beer cans, old antique medical devices, and vintage typewriters.
New Age collectibles include fine wine and spirits. Actually,thieves, gives you the opportunity to invest in good wine and spirits. You can buy shares in rare wine and spirits collections and shares in any positive (or negative) direction.See her.
If you are considering investing in collectibles, make sure you do a lot of homework and get some training first. This is also an area where a lot of investment fraud takes place. It's also important to remember that cumulative investment gains are taxed at a much higher rate than other investments – which is your ordinary income tax rate (not the special 20% for capital gains).
Where to buy collectibles really depends on the item. You can go online to places likeeBay, or go high-end like auction houses likeSotheby'sofChristie's.
A reminder of the different ways to start investing
There are many ways to start investing. We've covered most of the great ways to start investing with just $1,000. Having more money opens up even more investment opportunities. However, most are still variations on the above themes.
The most important thing to remember with all of these different ways to start investing is that you still need to do your homework and know what you are investing in. You need to know why you are investing and what to expect.
