How To Invest Your First $1000 in 2021

How To Invest Your First $1000 in 2021

As you’re thinking about ways to invest your first $1000, first you’ve got to ask yourself what are your financial goals? I discuss what types of investments you could make across stocks, funds, bonds, and more.

Know what your financial needs are, and carefully weigh your options and conduct your own due diligence and thorough research before you invest in any asset.

Any action or no action with money involves risks because of the effects of inflation in addition to the possibility of losing money. If you keep your money in a bank or under a bed mattress, if inflation is raging at 5%, your money is losing buying or purchasing power and could still be losing 4% while generating 1% in interest in a bank. You want to try to generate rates of return above inflation.

Different investment time horizons may involve different levels of effort if you’re trying to get returns over the short-term, medium-term, and long-term for how you can put your $1000 to work.

Ideally, you would invest for the long term so you eventually have income coming in through your investments. This would be the ultimate holy grail of trying to invest.

A few $1000 ideas include making sure you have an emergency fund in an interest-earning checking or savings (could also be a money market) account, investing in your education and career development, learning how to invest in stocks, starting a business, saving toward real estate, certificates of deposit, bonds, and alternative investments.

You can do a combination of these approaches depending on what your goals are.

Based on a 200+ year track record, stocks have generated the highest levels of return over bonds, gold, and the US dollar.

I believe stocks with a real rate of return of 6.7% from 1802 through 2016 make the best type of investment and returned over one million dollars in 200+ years. Compare this to the US dollar which over the same amount of time returned -1.4%, or a dollar became a nickel.

This suggests that keeping too much in cash could be a riskier proposition than investing in the stock market.

While the S&P 500 has enjoyed pretty good returns averaging 10-11% over the last 95 years, it doesn’t always yield positive returns every year. In 2008 it returned -37% and in 2018 -4.38%, but those were the only 2 down years in the epic bull market that has been roaring up since 2009.

But you have to also have awareness of where we are in the market cycle because some market indicators like the Shiller PE hovering around 38-39 would suggest the market is almost as expensive as during the Dot Com Bubble.

Proceed with caution if you invest in any index funds (aka passive mutual funds) or ETFs and make sure you know how these securities trade and read the prospectus and know as much as possible before you plunk money into the stock market.

I like to invest the way Warren Buffett does by thoroughly researching and understanding companies’ stocks and then investing in them when they’re on sale. I do this because I’m striving for above average rates of return.

When it comes to investments with varying rates of returns, you could put your $1000 toward your college tuition or professional certificates that eventually lead to you getting job salary increases. Investing in your continuing education is one of the best ways to learn in the short term and get more income in the near term through employment opportunities.

You could also start your own business, setting everything up with less than $1000. You could sell goods and freelance services online if you want.

You could also rent out rooms out of your home (such as with Airbnb), depending on what the rules are.

There are also crowdfunding sites, such as for real estate, but make sure you do your due diligence before you invest any money in those.

Collectibles might also be an alternative investment and could include art, pokemon cards, video games, comic books, antique furniture, cryptocurrencies, non-fungible tokens (NFTs). Also make sure you know what you’re getting into with any alternative investments.

With some of the assets that yield the lowest returns, there are US treasury bonds which might give you 1-2% for a 7 to 30 year bond. Corporate bonds might yield slightly more, but I stay away from bonds.

There are also Certificates of Deposit (CDs) that yield between 0.5% to 1% give or take for locking up your money for 1-5 years.

These options don’t seem worth it to me because if there’s a good stock buying opportunity, I’d rather have my money be fully liquid and not tied up so I can invest right away.

Some savings and checking accounts may give you decent returns (for 2021), so check out my video of the best banks offering rates of up to 0.5%. I recently came across 1-4% interest rates from a T-Mobile Money checking account (not sponsored and not advice), which seems surprisingly impressive considering the low interest rate environment.

If you’re interested in investing, the most tax-advantaged accounts are in the following order of most to least: 1) HSA, 2) Roth IRA, 3) 401k, and 4) Individual investing account (fully taxable).

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.

I look forward to making more investor friends! Add me on Instagram: michellemarki.