7 Ways to Invest $1,000

Investing is an incremental game, and building a solid portfolio takes time. Here are seven ways to invest $1,000 to help you get started.

1. Pay Down Debt

Paying off debt ensures a guaranteed return. The interest you save is essentially a risk-free investment. Once debt-free, you will be able to target your $1,000 toward an emergency fund into an account that earns interest, such as a savings account or money market account.

2. Invest in an ETF or Index Fund

Exchange-traded funds (ETFs) and index funds are a way to invest in the market with a small amount of money. These funds are transparent investments offered by financial institutions, and information is readily available for ETFs and index funds, including their holdings, commissions, and expense ratios. Pick the best broker for buying ETFs from our list of Best Brokers for ETFs.

Index funds are a passive, broad market investment through the major indexes, while ETFs offer more choices to customize a portfolio. With $1,000, you can choose multiple ETFs with different risk profiles. For example, you might invest $250 in a higher-risk, growth-oriented ETF, $250 into a dividend ETF, and $500 into a bond ETF.

3. Use Target-Date Funds

Target-date funds offer similar diversity to ETFs, but they require less effort when choosing. A target-date fund may have a higher expense ratio than your basic ETF, but in return, the fund will allocate and rebalance the account for you over time based on the target date.

4. Try a Robo-Advisor

Robo-advisors like Betterment, Acorns, and AssetBuilder use artificial intelligence (AI) and offer active management at lower expense ratios than the prices of human fund managers. This has prompted traditional advisors like Fidelity Investments and Charles Schwab to use AI for some of their offerings.

5. Low-Risk Debt Instruments

ETFs, index funds, and mutual funds are commonly stock funds with higher risk and return profiles than investments in debt instruments. U.S. Treasuries and savings bonds may carry competitive yields comparable to funds but at a lower risk.

Investment bank Morgan Stanley expects inflation to be around 3.5% by the end of 2023, with Treasuries offering modest inflation-adjusted returns. Treasury bond income is also exempt from state and local taxes.

6. Buy a Single Stock

Stock investment commonly requires a higher risk tolerance, but may garner higher potential returns for your $1,000. Over the last decade, an investment in Meta (META), Apple (AAPL), Netflix (NFLX), or Alphabet (GOOGL or GOOG) would have doubled or tripled $1,000. Stock investment requires research and timing. According to Morgan Stanley, stocks are priced to return 1.8% more than Treasuries in 2023, below the average spread of 3.5% over the last decade.

7. Trade Options and Forex

Options trading and foreign exchange (forex) trading are very high-risk investments and are commonly used by experienced investors. Options are a form of derivative contract that gives buyers of the contracts the right to buy or sell a security at a chosen price at some point in the future. The forex market is a global marketplace for exchanging national currencies. Many traders lose more than $1,000 as they spend years learning this trading craft and making consistently profitable trades.

The Bottom Line

With many available options, investors can use $1,000 to purchase ETFs, stocks, or bonds. Simply paying off outstanding debt may save money in interest payments over time and prove to be a wise investment.