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.
$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.