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Where To Invest $1,000

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Every once and a while I get an email from a reader that asks where he or she should invest $1,000.

My answer? An online savings account or a certificate of deposit.

Unfortunately, $1,000 just simply isn’t enough for you to invest in the stock market. It’s certainly not enough for real estate and it’s usually not enough for investing in any asset class.

Transaction Costs

$1,000 is not enough because transaction costs are too high.

At $1,000, you can’t open an account at large mutual fund companies like Fidelity ($2500) or Vanguard ($3000), where can can buy and sell their mutual funds for free. You don’t qualify for commission free stock trades from Zecco. The cheapest place to trade stocks would then be $2.95 at OptionsHouse or $4.95 at TradeKing. That’s a round-trip commission of 0.59% and 0.98%, respectively. While that’s not a lot, it is a hurdle you’ll have to overcome to make a trade profitable.

While the stock market is at historic lows and would mean a great investment for someone with a long time horizon, you might want to wait until you’ve saved up some more money before you commit it to an investment.

For the time being, I recommend that you put your savings away in an online savings account or a bank cd.

{ 23 comments, please add your thoughts now! }

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23 Responses to “Where To Invest $1,000”

  1. GaryG says:

    I would think that the answer would be “it depends”
    Several years ago I put $1000 in a online brokerage account with about $8 trading fees. I had read up on some investing, I had been a member of an investment club. So I had learned things about PE ratios and DRIPS and how the stock market works. I had found some companies that to follow. I am a self diagnosed computer geek. Several years ago AMD was low. I had been following there product lines and based on the soon to be released CPU I figured that AMD was undervalued. I bought 100 shares for a little over $3 a share. AMD went up, it took a while almost a year but it went up to $11. I sold and profited almost $800. My risk tolerance with the initial $1000 was very high. I put it into stocks knowing I could lose it all. I think the last time I checked my $1000 had grow to about $4000. Along the way I lost money I had invested in Marvel comics. That was a big learning experience. I lost just over $200. Marvel wound up in bankruptcy and I wound up with options to buy the new stock at three times the market. So like I said, it depends. If you do not have a time horizon, have high risk tolerance, and some time to learn stock trading, then $1000 could be invested in stocks. I would recommend staying to low cost, undervalued companies. Also, it will be a bumpy ride. My stocks are now just recovering from late last year.

    But, if you can’t afford to lose the $1000, then yes, online savings. I am getting a better interest in online savings then I could get with a one year CD locally.

    • Open an account with sharebuilder, and take advantage in one of their bonuses. Then buy $1000 worth of an etf like SDY or SPY, reinvest dividends, and watch your portfolio grow in value to provide $1000 in dividend income in 30-40 years ;-)

  2. Vanguard does have one fund with a $1,000 minimum – the STAR Fund. It’s a 60/40 split between stocks and bonds. It’s not the best long term choice for someone starting to invest for retirement or other long term goals, but it’s a start. After you reach $3,000, you can easily exchange from the STAR Fund into another one. And there are no transaction fees for any of it.

  3. ed says:

    You can also open up a brokerage account in ING Sharebuilder and save in transactions cost and fees and invest that 1000k in whatever you want ;)

  4. I opened up a savings account with FNBO about a week ago based on your recommendation. Saving for my dream car (Volvo s80). Thanks!

  5. LB says:

    I would like to point out that Vanguard’s STAR balanced fund (a combination of stocks, bonds, and “cash-equivalents”) has a $1000 minimum, and of course if you buy it through Vanguard there are no transaction fees. It’s got a .32% expense ratio and is pretty middle-of-the-road in the risk/reward scale. Not a bad place to put your money if you’re looking to invest over a long haul — though of course it cratered just like everything else did last year.

  6. MoneyNing says:

    If I have $1,000 to invest for the long term, the stock market is still going to be where I would put my money. At $5 a trade, buying a stock (or an ETF) is only 0.5% of the money. That’s still much better (in the long run) than say a CD.

  7. Adam says:

    Like most the other commenters, I believe that although a CD or savings account is a good option for $1,000, so is the stock market. Obviously, if I expect to use the money in the next 6-12 months, then yes I should put it into a safer vehicle. But with a number of decent alternatives that offer low fees (some have been mentioned already), that $1,000 can begin to work towards my longer term goals – especially if I can setup an automatic investment plan. Or I could even stick it into my kid’s 529 plan which is split between equity and bond funds.

  8. I think the “online savings account or CD” answer has to be the generic response in a situation where you have no idea what the knowledge and experience of the person asking is. If they’re demanding an answer, that’s the one to give them so they don’t blame you for losing it all.

    If they’re more interested in learning and strategizing, then there’s a much longer answer that can be tailored to just about any specific needs.

  9. bigdon says:

    Oakmark funds have 7 funds. They all have a minimum of $1000.

  10. Romyr says:

    Vanguard Star Index Fund. $1000 Minimum, and you can eventually transfer it into another fund when you do get to $3000. Good stuff. Asset allocation may not be what you want, but it is somewhere to start, especially with a low cost expense ratio.

  11. FiPod Mark says:

    Best investment? Spend it on yourself!

    In these trying times, you need to do something for the most important person in the world… YOU!

    Buy something nice for yourself. Have fun on a date. Go out and have a good time! :)

    $1000 bucks well spent.

    Rock On!
    - Mark

  12. TipToe says:

    I agree with ED. Sharebuilder allows $100 minimum investments for ntf mutual funds. A $1000 investment into an equity would only cost $4 or so….

  13. zach says:

    Yes, like Paul Williams said above, Vanguard has their STAR Fund for 1000usd. That is what I started with until 3000.

    If you already have money in savings and an emergency fund, I do not see a reason why a person can’t invest in the market with 1000. You have to start somewhere. There are Direct Investment Plans. For example Pfizer, and they don’t charge anything (except when you go to sell I think). You have to start somewhere? And deep down we all know the market is a great place to put money long term.

  14. MyJourney says:

    What about TRowe Price with a fund that just has to be funded with $50 bucks/month. This would allow for 20 months of transfers from the high yeild account to a balanced Mutual Fund.

    Again, this would assume the email writer had all other things in order.

  15. Honestly I don’t think investing in stocks is very wise right now. I’d just throw it in a high interest savings account and leave it be.

  16. baolson says:

    I think it depends what the $1,000 is for. If this is for an emergency fund or needing it in the next few years, then the online savings account does make sense. If it is long term, and don’t need it, then you could look to invest in the securities markets.

    If you want to invest, I would lean towards a good mutual fund, rather than individual stocks because of trading costs(unless you are going to hold the stock long term). I know Hodges (http://www.hodgesfund.com/) and Amana (http://www.amanafunds.com/) have $250 minimums and with decent track records. There are some others with $1,000 or less (like Vanguard STAR). Trading costs can start to hurt with active trading (especially individual stocks). I just got hit with transaction fees ($19) switching funds for our kids small funds. $19 is not alot, but when the accounts are under $1,000, that is a set back I’ll have to recoup with performance. So I agree with Jim on the cost point IF you don’t buy and hold the fund.

  17. Great tips there Jim.

    Passed on to my younger brother. He loved it!

    :)

  18. Armando Blume says:

    Unfortunately, with the market how it is, now is exactly the time you would want to go into stocks or an ETF.

    If you don’t have much money, what you might want to think about is getting into Options, possibly with ETrade.

    The beautiful thing with options is that you can make a lot of money for very little, however it is very risky, so if you don’t win big, you’ll lose your initial investment. If you don’t like that, go with dividend bearing stocks, if you’re not looking to make a lot of day trades.

    Because the market is low right now, a year is long enough to make some major money by just buying and holding for that long. Because it’s just a year (or less), it’s still considered a short term investment.

  19. Ronald C Denaro says:

    The best place to put your money is in a checking account. But it has to be a special checking account. Banks are competing for depositors. Some banks will pay you anywhere from $25 to $150 just to open an account. Guaranteed money ! No risk !

  20. govenar says:

    I think the stock market would be ok for investing $1000. You can put it in an index fund/ETF to diversify. If you’re concerned about transaction fees, an option now is Schwab that lets you buy Schwab ETFs for free.

  21. Just me says:

    Vanguard Star Fund, $1,000 to start


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