Got $1K To Invest? 9 Money Experts Offer Their Best Advice for It
Investing has a reputation for being complicated, but it doesn't have to be. Whether you're paralyzed by too many options or unsure if you're making the right calls, the truth is that almost every financial expert agrees: Investing what you can beats sitting on the sidelines.
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The good news? Risk and volatility are manageable, especially with a long time horizon. Even starting with just $1,000 can put your money to work. Here are the top investment strategies from several different experts to get you going.
1. Pay Down Debt First
Dr. James M. Dahle, founder of The White Coat Investor, recommends taking the money and paying off credit card debt before anything else.
“The typical investor with $1,000 to invest ought to put that $1,000 toward credit cards,” he said, though he had some alternatives in mind. “If [the investor] is out of debt, at least besides a low-interest rate mortgage, then this money ought to go into a 401(k) if they have a match. If not, then maybe a Roth IRA in a simple mutual fund.”
2. Set Long-Term Goals
Why are you investing? Are you saving for retirement, buying a home or paying for higher education? Perhaps a combination of working to achieve several of these milestones?
Larry Ludwig, CEO and founder of Ludwig Media, recommends starting with the end in mind. Formerly the founder of Investor Junkie, Ludwig said having an end game going in will help determine what kind of investing is right for you.
3. Consider an Index Fund
“Investing in a diversified stock index fund is the best investment idea,” said Robert R. Johnson, professor of finance at Creighton University’s Heider College of Business.
“Vanguard 500 Index Fund Investor Shares (VFINX) invests in 500 of the largest U.S. companies. The fund is diversified and has a very low fee structure. It is an ideal first investment and one that the investor can continually add to by buying more shares. And, unlike owning single security, a fund is typically less volatile. Volatility can discourage novice investors.”
4. Don't Wait To Invest It
Taking your available dollars and investing them in your “human account” can generate far greater long-term returns than saving in a tax-free Roth IRA.
“The conventional wisdom is that young people should ‘save early and save often’ in retirement accounts,” said Michael Kitces, head of planning strategy at Buckingham Wealth Partners. “But the reality is that your greatest asset when you’re young is your ability to work and earn money in the future.”
5. Think Like Warren Buffett
What if you want to invest in a single company stock but don’t know which to buy? Johnson recommends Berkshire Hathaway Class B shares (BRK-B), where legendary investor Warren Buffett still serves as chairperson even though he retired as CEO.
“Berkshire owns more than 60 different operating companies,” Johnson explained. “In addition, Berkshire has positions in many large publicly traded companies like Coca-Cola and American Express. The side benefit of Berkshire Hathaway is that shareholders benefit from receiving the Berkshire Hathaway annual report and the wisdom of Mr. Buffett.”
6. Learn From the Pros
Paul Engel, founder of Knowledge Capital Consulting, recommends taking a cue from famed fund manager Peter Lynch and investing in what you know.“[Lynch] wrote a book called ‘Beating The Street.’ I would suggest every new investor read that book. Get it from the library, and the ROI is even higher.”
J.D. Roth, founder and editor of Get Rich Slowly, also seconds the recommendation to educate yourself by reading up on investing. “I recommend any books by William Bernstein,” Roth said. “Learn what stocks and bonds are and how the markets work. Teach yourself to invest in low-cost index funds. Ask questions. Be willing to make a few early mistakes. Take charge of your financial future.”
7. Create a Diversified Portfolio
Certified financial planner Natalie Bacon recommends taking $1,000 to create a small, diversified investment portfolio.
“Do this by opening an individual investment account at a brokerage firm. Before you choose which investments to put in your portfolio, decide what you want your asset allocation to be,” Bacon said. “Asset allocation is the most important part of your portfolio — more important than the actual securities you choose to invest in.”
8. Utilize a Robo-Advisor
Brad Kingsley, CFP at Maximize Your Money, said it’s worth considering investing with a robo-advisor. This is especially true for investors just getting started who have only small amounts of money to invest. Investing with a robo-advisor, Kingsley said, means experiencing a reasonable monthly cost and typically, no trade fees.
9. Be Cautious With High Yields
Keith Park, entrepreneur and owner of DivHut, cautions new investors to not get sucked in by the allure of high single or double-digit yields. “More often than not, a yield that high signals a red flag,” Park said. “This is either because a dramatic stock price decline occurred or the company is paying out too much of its free cash.”
Heather Taylor contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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