We all have to invest our first $1,000 somehow, and the best way is not sexy or trendy, and it does not lock up your money (sorry Bitcoin, Fundrise, and Lending Club). In this piece, I will discuss 4 different ways you should invest your first $1,000.
1. Start by building a freedom fund
A freedom fund is the money set aside to cover an unplanned emergency expense. This is a freedom fund or a safety net because it gives you the freedom and security to cover a rainy day expense without going into debt and derailing your financial progress. While $1000 is not a big enough freedom fund for most people, it is a good start. Over time, you can then increase your freedom fund to the recommended three to six months living expenses.
The best way to hold your safety net savings is in a high yield savings account. You can also hold it in a conservative money market fund, like the Vanguard Federal Money Market Fund (VMFXX) or the Schwab Treasury Obligations Money Fund (SNOXX).
2. Start investing in the stock market with ETFs
If you already have some cash savings, then you may want to start investing your money into the stock market. I suggest using low cost ETFs from one of the big brands: Vanguard, Schwab, iShares, or State Street. If you don’t want to pick your own investments, I suggest using a service like Betterment which charges a small asset management fee to manage your investments for you.
If you choose to invest your money on your own, you could start a very simple portfolio with something like 45% United States large company stocks, 35% developed country large company stocks, and 20% United States Bonds. There are alot of model portfolios that you can follow and each of the ETF providers will have a decent recommendation. If you would rather use traditional mutual funds, Schwab is the best option because its mutual funds have minimums of $1, while most mutual funds have a minimum over $1000.
I don’t recommend alternative style investments like Lending Club or Fundrise because they lock up your money for several years. Of course, stock market investing is not short term either, but at least you can sell if you needed to.
3. Invest in yourself and your education
Many times the best return on your money is to invest in yourself and learn a new skill. You won’t be able to get a college degree with $1000, but you could obtain a real estate license or other professional certification which could increase your earning potential. This will most likely be more rewarding for you than investing in the stock market unless you already have a good career.
4. Start a business
Many small businesses can be started for $1000 or less. A small business that succeeds can easily be the highest returning investment. If you have a good idea and the time to start the business, you should take the leap and see what happens. If your business idea doesn’t work out the first time, you only spent $1000 and you can always try again with another idea later.
There are many types of businesses that are easy to start. You could try a local service business or even an online Shopify store.
Get Started Today
Regardless of what you choose to do with your first thousand dollars, it is important to get started and take action. You may not make the best decisions the first time around, but if you are bold enough to take action, you will make huge progress. Let’s all make it a goal to save money and invest in our futures this year.
I recently wrote about high yield savings accounts and you can read about that here. Included links are for your convenience and are not affiliate links.