The rich had to start somewhere. Forget that some wealthy people are born affluent, won a lottery or had connections – plenty of them started right where you may be now: somewhere near the inglorious bottom. So if you've finally scraped up some extra money, and you don't need to divert it into debt, an emergency fund or a new washing machine, you may want to try your hand at investing.
We asked a handful of financial experts to give their suggestions for investing $1,000, a pittance for a veteran investor but a decent sum for many of us.
But before you consider any of the following ideas, remember, especially if you are a beginner, investing takes time. If you think you might need that $1,000 in a few months, adding more money to your rainy-day fund is the best thing you can do. And you should never invest anything you can't tolerate the thought of possibly losing; after all, investing is a risk. Of course, many people will argue that you're risking plenty if you don't invest. So if you have an extra thousand, consider placing it into the following:
Exchange-traded funds. ETFs have been growing in popularity since they were introduced 20 years ago. Like stocks, ETFs can be bought or sold on an exchange at any time during the trading day. But similar to a mutual fund, an ETF holds a basket of assets, like tech stocks, or, more broadly, the U.S. stock market.
"They provide broad asset-class exposure and do so for a very cheap cost," says Jake Loescher, a financial advisor at Savant Capital Management, a fee-only wealth management firm headquartered in Rockford, Ill. So while an investor with deeper pockets may want to invest in mutual funds, ETFs are fairly accessible to a beginning investor.
Mutual funds. That isn't to say all mutual funds are off the table for someone with a grand to invest, according to Loescher. "Many of the Vanguard Target Retirement mutual funds are easy to set up, even for the unsophisticated investor, and offer this broad asset-allocation exposure at the $1,000 minimum funding standard," Loescher says. "They also offer automatic rebalancing as the individual gets closer to retirement."
Another thing to consider if you're debating between a mutual fund or ETF: whether this $1,000 is a one-time investment or the start of a plan to put money away every month. If you can afford to sock away some money every month toward your retirement, a mutual fund is a good choice (and even better if you're contributing it to an IRA or a 401(k) plan, both of which have tax advantages).
"Most mutual funds have a $1,000 minimum with $25 minimum deposits," says David Nawrocki, a finance professor at the Villanova School of Business in Villanova, Penn.
Certificates of deposit. These are among the safest investments because they are insured by the Federal Deposit Insurance Corp. Because the United States is insuring your money, it's impossible to lose money in a CD. But since there is virtually no risk, there isn't much interest (many of the highest-yielding 1-year CDs currently pay under 1 percent, according to Bankrate.com). There are even some banks that offer no-penalty CDs, meaning if you need to withdraw the money early, you won't get hit with a fee.
"New investors would be wise to start off very conservatively," says Diana Webb, assistant professor of finance at Northwood University, a private university with campuses in Florida, Michigan and Texas as well as countries such as China and Switzerland. "If a new investor experiences a poor market in the early beginnings of investing, then they will be frightened away and very leery of investing."
Still, Webb suggests taking some risks, especially if you're younger. Ideally, she says, you should subtract your age from 100, so if you're 25, 75 percent of your investment can be invested in something a bit risky, such as the stock market. The remaining 25 percent would go into something considered quite safe, such as a CD or a U.S. government savings bond, which is another safe investment with very little reward due to the low interest (the current composite rate on I Savings Bonds is 1.8 percent until October 31; you can buy them from the Treasury at treasurydirect.gov/readysavegrow).