You’re out of school and you have a job, or your kids are finally out of school and you have some extra cash now that tuition payments are gone. Or maybe you’ve simply saved up an extra $1,000 and want to invest it. Where should that money go? Good news: You have multiple options.
The simple yet diversified approach
Invest in an ETF. These funds track an index, which gives you a diversified exposure to the market, all from one simple investment.
This helps you get a feel for investing while cutting down on risk. It’s probably best to place the full sum into an ETF that tracks the S&P 500.
Diversifying $1,000 won’t leave you with much in terms of shares per position. Instead, consider something like the Vanguard S&P 500 ETF. It’s the start of learning to invest in a strategic way.
You can then study the companies within the ETF and start getting an idea of how it all works.
The aggressive approach
Say you want to try to make your $1,000 really do some work for you. You probably won’t be able to get splashy results by simply investing in an index, and you want to find one stock that has big upside potential. It might be temping to try something in the small-cap or mid-cap range, but there are higher risks and deeper research involved in these sorts of companies.
If this is your first go-round, it’s still wise to stick to a bigger and more established business. My advice: Stick to the basics. Find a good industry and invest in a company with a long history of earnings growth. And you might not even have to forgo big gains: Apple (NASDAQ:AAPL) gained 103% over the past year, far outpacing the S&P 500.
Use an online broker to save money
You don’t want to pay any fees on $1,000. Instead, use an online brokerage firm. These types of brokerages have been moving to $0 commissions on trades, meaning you won’t surrender a big chunk of your investment just to get in the game. It’s also an educational experience, as placing your own trades will give you an understanding of how it all works. Most online brokerages offer a plethora of educational tools, meaning you’ll be able to learn more and more about the investment world.
Start preparing for retirement
It sounds boring, but open an individual retirement account (IRA). Or contribute to an existing IRA. You can gain the tax advantages of the retirement fund and make sure that you truly put the money away for later. Deposits, or contributions, to traditional IRAs are also tax-deductible up to $6,000. Not only can you create a vehicle for long-term growth, but you can lessen the tax burden on your income at the same time.
The alternative to investing in the market
Markets are not guaranteed. Even the safest investments can lose value. If you wish to avoid the risk, but still want to use your $1,000 in a constructive way, pay off debt. It’s that simple. If you have any outstanding financial liabilities, use your $1,000 to get rid of it. Interest on debt is an irritating detractor from financial freedom that few pay attention to. Whether it’s your car, your school loans, your home, pay some of it off.
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Source: The Motley Fool