9 Smart Ways to Invest $1,000

Joseph Meyer
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Real Estate Investing (REITs)

Real estate investment trusts (REITs) allow you to pool your money with the general public to buy properties. This will diversify the risk, and if you don’t mind an illiquid investment, it can reduce the risk of number 1 if you aren’t in a hurry to get your principal back. REITs typically own 5 to 10 properties, so you aren’t going to do better than a diversified real estate portfolio, and your timing needs to be pretty good. But if you don’t want to make the investment your self or you don’t have the capital, REITs can reduce the risk by buying properties in a whole bunch of locations.

Robo Advisors

(robo-advisor):

Robo-advisors are the emerging new fads of the investment world that promise to take a human’s place after he or she has set up an account. (Let’s face it, if you are busy, you probably don’t want to manually allocate your money.) However, it’s important to understand what robo-advisors are, exactly, before you ditch your financial advisor.

Robo-advisors are automatic portfolio management tools that use algorithms to make investment decisions, and that generally offer low fees.

Many robo-advisors will give you diversified portfolios for as low as fifty dollars per month to get started.

Additionally, robo-advisors often offer tax-advantaged retirement accounts that are easy for investors to miss out on.

ETFs

(Exchange-Traded Funds)

I’ve owned shares of a mutual fund for years, but that’s not the only way to invest in the stock market. ETFs (Exchange-Traded Funds) are another option.

When you buy shares in a mutual fund, you are purchasing a share of the whole fund. This is different from an ETF, which are traded during the day on the stock market. Because of the liquidity of ETFs and the low cost structure of their funds, ETFs are typically a cheaper option to mutual funds.

ETFs usually track the sector of an industry (for example energy, technology, or financials). For investors seeking to gain exposure in a larger index, ETFs also offers a cost effective way to implement your investment goals.

High-Yield Savings

These days, it seems like everybody has the option of an online savings account that yields high interest rates for the first 3 months. It can be tricky to find the offering the biggest yield with the small amount of cash that many investors have to work with.

One option (if you don’t like the idea of putting your money somewhere online) is to use a high-yield savings account. This type of account doesn’t usually carry any monthly fees. But individuals who have a high-yield savings account should make sure they check the interest rate and find out the details of early withdrawal penalties. As a rule of thumb, accounts that require the account holder to shell out a significant amount of money in order to access the interest accrued are probably best to avoid. If you’re torn between a high-yield account and an online savings account, be sure to check the details of both options before deciding where to put your money.

Peer-to-peer lending

In short: Peer-to-peer (P2P) lending lets you lend your money directly to individuals or businesses through an online platform. You become a lender and usually set the terms of your loan, like the term and annual percentage rate (APR).

Definitely a happier place to be.

Although the effect of compounding is impossible to be realized upon a small amount of money, your level of happiness will grow with the number of dollars you have earned in stable interest through your peer-to-peer lending platform.

High Yield Emergency Fund

This is the first account you should open if you are entering the banking system for the first time or need to build up your safe deposit box. If you were ever to run into trouble, emergency funds are critical to avoid bounced checks or an event that could cause you to make late payments.

Even if you aren’t going through hard times, an emergency fund is a smart addition to your balance sheet. It adds financial cushioning during times of base rate changes, meaning you can steady fee increases. This is especially important for people with variable rate loans.

If you’ve recently received a promotion or pay raise, this is the time to fund your emergency account with six months of extra salary.

Real Estate Investing (REITs)

Real estate investment trusts (REITs) allow you to pool your money with the general public to buy properties. This will diversify the risk, and if you don’t mind an illiquid investment, it can reduce the risk of number 1 if you aren’t in a hurry to get your principal back. REITs typically own 5 to 10 properties, so you aren’t going to do better than a diversified real estate portfolio, and your timing needs to be pretty good. But if you don’t want to make the investment your self or you don’t have the capital, REITs can reduce the risk by buying properties in a whole bunch of locations.

Peer to peer lending

Peer to peer lending, or person to person lending as it’s sometimes called, gives lenders access to the kinds of interest rates that are usually reserved for the big institutional players in the industry. The way these programs work is they connect people with great credit ratings who have a lot of extra money and provide capital to those who need it.

The people who offer to take out the peer to peer loans are borrowers, and you can browse these borrowers and decide which ones you’d like to lend money to. After you’re approved for the loan, the borrower can receive the loan amount in a matter of days. And here’s the real beauty: peer to peer loans work almost exactly like any other loan. You can even collect on any of these loans should the borrower stop paying the agreed-upon rate.

Peer to peer lending has benefitted many borrowers who otherwise would never been able to secure a loan because of poor credit or because their financial situations otherwise wouldn’t have been able to qualify for a loan. Be sure to do your homework before you make any kind of investment. You should talk to a financial advisor and read some of the materials produced by the lending companies to make sure you’re not getting scammed.

Let robots handle your investments

Betterment

Betterment is primarily a roboadvisory service. This means its website will automatically invest your money based on your goals and make adjustments based on market conditions.

Diversify your money with ETFs

Pay down your debt

Debt is like fat, except it costs money instead of adding it. If you have credit card balances, you are throwing money away. It’s the most expensive way to borrow: interest rates are high and credit card companies are ruthless. Pay down your debt, and your financial life will immediately improve.

Invest in your kids’ college education

If you are in your 40s or older, you’re probably feeling overwhelmed by the fact that you have kids in your teens. They are more expensive than ever and have little interest in saving. Start saving for your children’s college education. This is especially true for those with teens because higher education costs are rising.

Start a Roth IRA

The benefits of a Roth IRA are worth the short term sacrifice.

A traditional IRA is tax-deductible when you make the contribution. Traditional IRA contributions are taxed when withdrawn. The downside to this is that you’ll pay taxes on your balance upon withdrawal, even if you don’t need the money.

Contributions to a Roth IRA are non-deductible. But, qualified distributions are tax-free. And qualified distributions are withdrawals that are made after both a five-year holding period and age 59–.

If you’re in the lofty 15% tax bracket or lower, the tax break is greater in a traditional IRA compared to a Roth IRA. If you’re in the 28% tax bracket or higher, the tax break is greater in a Roth IRA compared to a traditional IRA.

If you’re in your 20s and early 30s and you’re not sure if you’ll make moderate to high wage after retirement and you’re expecting to pay much higher taxes in retirement, you should consider contributing to a Roth IRA. The tax break will more than make up for the penalty.

Invest in a small business idea

Final Thoughts

Money may bring you comfort, but it is the investments you make with it that can make you rich. Invested money can give you a richer future in many ways, including: the ability to travel, study, and retire in comfort.

So, if building wealth is your goal, don’t forget to spend some of your money today on investments that will help you achieve that wealth in the future.

In the final chapter, I want to discuss a bit more about investment approaches. I’ll do this at a high level, but be aware that I’m not giving any financial advice here. This is not a place to seek financial advice, it is merely to inspire your own personal thinking.