Investing can seem like a daunting field to jump right into, especially to newcomers. With an overwhelming amount of options available, even asking for advice can seem intimidating. And even those who choose to dabble in investing can become preoccupied with doubt that they’re making the right choices. All of these factors can make investing seem prohibitive to newcomers and potentially keep people from making their money work for them.
Investing doesn’t have to be that way, however. While almost all financial experts will recommend investing what you can, there are ways to minimize all the risk and volatility, especially for those with a long enough timeline. For example, for those who might need a return on their investments in two years, there are safe and stable options. If the money won’t be needed for 20 years or more, there are riskier choices to invest in.
If you’re on the sidelines and wary to get in the game, especially given the current economic climate, investing can still makes good financial sense. Even starting small with $1,000 is a good first step.
Last updated: Aug. 18, 2021
Pay Down Debt
The White Coat Investors’ Dr. Jim Dahle recommends taking the money and paying off credit card debt.
“The typical investor with $1,000 to invest ought to put that $1,000 toward his credit cards,” he said, though he had some alternatives in mind.
“If he’s out of debt, at least besides a low-interest rate mortgage, then it ought to go into a 401k if he has a match. If not, then maybe a Roth IRA in a simple mutual fund like a Vanguard Target Retirement fund.”
Basically, if there’s significant credit card debt, that should be the focus for the time being, not investing.
Set Your Long-Term Goals
“Start with the end in mind,” said Larry Ludwig, founder of Investor Junkie. Having an endgame going in will help determine what kind of investing is right for you.
“What’s the purpose of investing? Retirement, home purchase, higher education?”
One Recommendation for a Fund, One Recommendation for a Stock
“Investing in a diversified stock index fund is the best investment idea,” said Robert R. Johnson, former CEO of The American College of Financial Services and current financial professor at Creighton University. “For instance, the Vanguard 500 Index Fund Investor Shares (VFINX) invests in 500 of the largest U.S. companies. The fund is diversified and has a very low fee structure. It is an ideal first investment and one that the investor can continually add to by buying more shares. And, unlike owning single security, a fund is typically less volatile. Volatility can discourage novice investors.”
He also recommended Warren Buffett’s Berkshire Hathaway B shares (BRK-B) for anyone looking to purchase single company stock, given the company’s own diversity.
“Berkshire owns more than 60 different operating companies like See’s Candies and Dairy Queen,” Johnson explained. “In addition, Berkshire has positions in many large publicly traded companies like Coca-Cola and American Express. The side benefit of Berkshire Hathaway is that shareholders benefit from receiving the Berkshire Hathaway Annual Report and the wisdom of Mr. Buffett and his partner Charlie Munger.”
Focus on Yourself
“The conventional wisdom is that young people should ‘save early and save often’ in retirement accounts,” said Michael Kitces, Head of Planning Strategy at Buckingham Wealth Partners. “But the reality is that your greatest asset when you’re young is your ability to work and earn money in the future.
Taking your available dollars and investing them in your ‘human account’ — yourself –can actually generate far greater long-term returns than even saving in a tax-free Roth IRA.”
Index But Educate Yourself
“A no-load index fund from a company like Vanguard is a good place to invest $1,000,” said John Paul Engel, a former lecturer of entrepreneurship at the University of Iowa and founder of Knowledge Capital Consulting. “The famed fund manager that grew Fidelity, Peter Lynch, suggests that people invest in what they know.”
He also suggested some reading material penned by Lynch himself. “He wrote a book called ‘Beating The Street.’ I would suggest every new investor read that book. Get it from the library, and the ROI is even higher.”
Don’t Get Emotional
Steven Jon Kaplan, Investment Counselor and the blogger behind True Contrarian, said that finding a strategy can help level out the emotional rollercoaster that investment often entails.
“Out of $1,000, I would recommend putting $500 into a myRA account, which pays [about] 2 percent annually — the U.S. government thrift savings plan ‘G’ fund — and teaches you about compounding interest tax-free,” he said. “I would put the other $500 into an E-Trade account, trading only their commission-free funds to understand what investing is about and to learn the emotions of fluctuating assets.”
Brian from Lazy Man and Money advised a cautious approach. “I’d hate for a novice to lose too much money… they might lose interest in investing forever,” he said. “For this reason, I’d err on the conservative side.”
Instead, he recommended that investors consider the Vanguard STAR mutual fund, which has a $1,000 investment minimum. “It’s a balanced mix of stocks and bonds, so it should be relatively stable while growing money over the long haul,” he said. “Another idea would be to look into the robo-advisors like Betterment and Wealthfront. I think these are relatively safe ways to invest.”
Invest in the Index
“Keep it simple and low-risk. Invest in index funds with a low-fee broker,” said Pauline Paquin, the owner of Reach Financial Independence. “Most novice investors make the mistake of exiting trades too early when they start making a profit and keeping losses for too long. So, just leave it there, and watch it grow over time. Even funds managers have a hard time beating the market.”
Freelance financial writer Miranda Marquit shared a similar idea: starting with an index EFT. “I love indexing because it’s a good way to see instant diversification without a lot of trouble,” she said. “An all-market ETF offers you the chance to keep pace with returns and comes with low costs. It’s a good way to get the best bang for your investment dollar.”
Keep Costs Low
John Schmoll, the President of the Entrepreneurial marketing company stressed the need to keep all the extra fees in mind beforehand. “The best way to invest $1,000, especially if you’re new to investing, is through a low-cost, broad-based index fund,” he said. “It’s not the most exciting option to choose, but it’s the wisest for a number of reasons. Not only will it help you ride the ups and downs of the market smoother, but it will also significantly reduce just how much you’re paying to invest.”
“Don’t give in to the myth that investing ‘only’ $1,000 isn’t worth the effort,” Schmoll added. “It’s very much worth the effort, as it’ll help build a foundation for growing your wealth.”
Employ a Long-Term, Low-Cost, Diversified Position
“I believe the best way to invest $1,000 is to create a small, diversified investment portfolio that you can build off in the future,” said Natalie Bacon, certified financial planner and founder of her eponymous advice site for women. “Do this by opening an individual investment account at a brokerage firm. Before you choose which investments to put in your portfolio, decide what you want your asset allocation to be.
Asset allocation is the most important part of your portfolio — more important than the actual securities you choose to invest in. Asset allocation is the mix of types of investments you want in your portfolio — 80 percent equities, 10 percent bonds and 10 percent market diversifiers.” This strategy is vital when investing for the long term.
Be Patient if Possible
Barbara Friedberg, CEO of Wealth Media, thought that a more worldly view is best. “If you can leave the money invested for at least 10 years and are not looking for a quick turnaround, I’d suggest investing $1,000 in the Vanguard [Total] World Index ETF Stock fund (VT),” which Friedberg owns. “If you believe that the total world economies will grow and prosper in the future, then this is a low-cost way to benefit.”
Consider a Robo-Advisor
“When someone has gotten their ‘financial house in order’ and is ready to start investing, there are several good low-cost options for beginners,” said Brad Kingsley, a certified financial planner at Maximize Your Money. “In any portfolio, the investor will want to make sure they are diversified across stocks and bonds, but also different types of asset classes within those two large groupings. Some people giving advice recommend as few as four different investments, but more commonly the suggestion averages about 10 different investments.”
“For someone who went with the portfolio of 10 holdings, that would potentially cost $80-plus to execute the trades at most brokerages. A better-priced option for people just getting started and with small amounts to invest would be a ‘robo-advisor,’ like Betterment. … At a robo-advisor, there often aren’t trade fees, and the monthly cost is very reasonable.”
Learn to Be Your Own Advisor
While it definitely can be beneficial to have a financial pro to help sort out your options, J.D. Roth, the founder and editor of Get Rich Slowly, says it’s an option to “decide to become your own best financial advisor.”
“A lot of new investors are timid,” Roth explains. “They don’t want to make mistakes. They believe they need to pay somebody to help them, that the stock market is complicated or that they can pick winning stocks. None of this is true.”
Roth says that would-be investors should go to the library or check out some advice online to help educate themselves in the investment world. “Borrow some books on smart investing,” Roth says. “I recommend anything by William Bernstein. Learn what stocks and bonds are and how the markets work. Teach yourself to invest in low-cost index funds. Ask questions. Be willing to make a few early mistakes. Take charge of your financial future.”
Master Dividend Investing the Smart Way
“The No. 1 tip I have for any new investor is to not get sucked in by the allure of high single-digit or double-digit yields,” said Keith Park of DivHut. “More often than not, a yield that high signals a red flag because 1) a dramatic stock price decline occurred or 2) the company is paying out too much of its free cash…”
Park also recommended that new investors check out fee-free trading platforms like Robinhood or Loyal3. “Being able to invest with $0 commission allows even a modest amount of cash to be diversified among a handful of different dividend-paying stocks,” he said. “By using these platforms, one can buy stocks in various sectors, reinvest dividends and be on their way toward creating an ever-growing passive income stream.”
Invest in a Safety Net
Kate Dore of Cashville Skyline suggested setting up a personal buffer for oneself before moving onto more long-term strategies. “Start by investing three to six months of living expenses into a highly liquid account for an emergency fund,” she said. “Try to secure a rate of return that keeps pace with inflation, while still maintaining liquidity, like a high-interest savings or money market deposit account.”
Once that’s done, Dore recommends contributing to your employer’s match in your 401k. “If possible, look for opportunities to invest in low-cost, diversified investments like index funds. If you don’t have access to an employer-sponsored retirement vehicle, a Roth IRA is another great option because your earnings [might] grow tax-free.”
Invest In Yourself
Todd Tresidder, owner and money coach at Financial Mentor, reiterated the importance of the idea of investing in oneself, “to increase your earning capacity, to accelerate your savings ability.”
“That’s because you’ll never achieve your financial goals investing $1,000, even though it’s a great start,” he added. Instead, you need to double and triple those savings as the fastest path to accelerate equity growth.” To that end, he recommended putting money into self-development. To do so, he said, “the fastest path in early stages is to invest in your earning capacity — seminars, specialized skills and training — to immediately increase your earnings and savings, then later invest in your investment skill for ROI in the long run.”
Harness the Power of Robots
While robots and automation aren’t going anywhere. Peter Anderson, the owner of Bible Money Matters, spoke about how they can be a solid option for new investors.
“Where should you invest? If you’re starting with only $1,000, it might limit some of your options, as some mutual funds will require a minimum purchase of $3,000 or more,” said Anderson. “With $1,000, I might suggest opening a Roth IRA account with an automatic investment advisor like WiseBanyan or Betterment. … No matter what you do, the biggest thing is to just start investing today.”
Like Many Things, It Depends
Ben Malick, President of Three Nine Investments, had two different recommendations depending on the person and their plan.
“If the person is more of a passive investor — no interest or aptitude for investing — I would recommend investing in a no-load Vanguard Retirement Date Fund — a minimum investment of $1,000 — that corresponds with your retirement date and regularly contributing to it. This provides diversification and will automatically rebalance as you approach your retirement. This is sort of the finance version of autopilot.”
More active investors might want to consider Motif Investing. “It’s a neat way that individuals can invest based on certain themes or beliefs,” Malick explained. “For example, if you really think that wearable technology is going to take off, then you can invest in the Wearable Technology Motif that’s comprised of companies in that space. I think it’s a great way for someone to get their feet wet with investing and learn how it works.”
Finally, Keep Calm
Matt Hylland of Hylland Capital shares a very important point: Keep your wits about you.
“Successful long-term investing is much more than asset allocation,” he said. “I think the most important quality of a successful long-term investor is keeping emotions under control and staying calm when others panic…”
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Christian Long contributed to the reporting for this article.
Some quotes have been edited and condensed for clarity. This article originally appeared on WalletHacks.com.