How to Invest 1000 Dollars: 7 NEW Strategies (2021)

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If you have a spare $1000 and want to know how to best invest it, then this blog post will help you do just that.

The most important trick to optimizing your $1000 is to have a game plan ready.

Without a game plan, chances are, you’ll spend the money in a few days.

In fact, about 70% of individuals who do come into sudden money spend everything – and more – going broke within the next few years.

70% of individuals who come into sudden money go broke after a few years

Source: CNBC

The irony is that money can leave you broke – if you don’t have the right game plan.

So, if you’ve been wondering how to invest 1000 dollars with a solid plan of action, you’ve come to the right place.

Let’s dive right in.

7 Best Ways to Invest $1000

Before I dive into the details, it’s important to remember that the strategies I’m about to share with you are just a few strategies that you can use to optimize your $1000.

There are many other ways to invest your $1000, and I’ve simply listed the top 7 that I have personally used in the past.

Let’s figure out which of these strategies works best for you.

1. Pay off High-Interest Debt

MMW Rating
5/5
Quick Overview

Risk Level

1/10

Who Should Do It

If you have high-interest debt (typically 10% or more)

Why It Makes Sense

You save money because you don’t pay high-interest rates anymore

How to Start

  • Pay online
  • Call your customer service agent

Recommended Resource

If you still have debt leftover, then consider consolidating your debt with LendingTree.

Before you even think about investing your $1000, the first thing you should do is think about the debts you owe. 

Remember, there are 2 main types of debt: Bad debt and smart debt.

Bad Debt Smart Debt

High-interest debt (typically 10% or more)

Debt used for depreciating assets (like cars)

Low-interest debt

Debt used for appreciating assets (like a mortgage)

If you find that you carry high-interest debt, like credit card debt, then your first thought should be “how can I get out of debt fast?”

As a quick refresher, I’ve listed the differences between the 2 methods below:

Snowball Method Avalanche Method

Pay off the lowest balance first

Pay off the highest interest rate first

Financially speaking, it makes more sense to pursue the avalanche method, because you’ll save more money paying off the debt with the highest interest rate first. 

However, the snowball method may be better if you need to get motivated… seeing small debts paid off is a huge motivator, and that can get the ball rolling for many.

What if you still have debt leftover?

If you find that there’s still a chunk of high-interest debt leftover after making your $1000 payment toward that debt, it’s time to think about a few other options – like debt consolidation.

Here’s roughly how debt consolidation works:

how debt consolidation works infographic

As you can see, debt consolidation is a way of combining all of your debts into 1 basket and then making just 1 payment.

It’s a way to simplify things for you.

One tool that can help you consolidate your debt is LendingTree.

LendingTree is like a matchmaker marketplace. 

They try to match the best debt consolidation options to your financial situation.

Personally, I would make it my mission to find a way to get out of debt first before you pursue anything else.

fiona smith the millennial money woman

The Bottom Line:

Before you even consider investing your $1000, first you want to make sure you have no high-interest debt (which typically is debt with interest rates of more than 10%). If you do have high-interest debt, then the first thing you should consider is using your $1000 to pay off that debt.

2. Increase your Emergency Savings Fund

MMW Rating
5/5
Quick Overview

Risk Level

1/10

Who Should Do It

Anyone who doesn’t have an emergency savings fund yet

Why It Makes Sense

You have cash in case you need it, so you don’t have to take on high-interest debt

How to Start

Enroll online

Recommended Resource

High Yield Savings Account: Axos Bank

Budgeting App: You Need a Budget

If you don’t owe high-interest debt, the next step we need to consider is increasing your emergency savings fund (if you haven’t already).

In other words, if it costs you to live on $2,000 per month, then your emergency savings account should be funded with:

  • Minimum = $6,000
  • Maximum = $12,000

Your emergency savings fund should be:

  • Cash
  • Liquid
  • Easily accessible

Why is it so important to have an emergency savings fund ready? 

That’s because 40% of Americans struggle to come up with just $400 to pay for an unexpected emergency expense!

40% of Americans struggle to come up with just $400 to pay for an unexpected expense

Source: CNBC

So what if you feel like saving up for 3 to 6 months’ worth of living expenses is something that just doesn’t seem attainable right now?

That’s OK!

Try to take it in baby steps.

Here’s how I would try to structure my goals if I wasn’t able to save a large chunk of money into my emergency savings account:

Emergency Fund Starting Number: $0 Emergency Fund Goal: $6,000

Goal for Month 1

$300 in total savings

Goal for Month 2

$600 in total savings

Goal for Month 3

$1,000 in total savings

Goal for Month 6

$3,000 in total savings

Goal for Month 12

$6,000 in total savings

If you’re able to save $1000 in the short term (roughly 3 months), that’s already a huge win!

Here’s a trick:

Don’t just keep your emergency fund money stored in a regular bank savings account, where you earn virtually 0% interest on your cash. 

Instead, think about storing your cash in a high-yield savings account (aka a savings account that has higher interest rates) so you earn more money on your cash.

One high-yield interest account I’d suggest you to consider is Axos Bank.

Axos Bank is certainly a good online high-yield savings account – just keep in mind that the 2021 interest rates are sadly not as high as they used to be (competitive interest rates today are about 0.50% versus what they used to be a few years ago, at 2% or more). 

Here’s what you can do if you can’t seem to find the cash for your emergency savings account:

If you’re struggling to come up with the cash to save enough money for your emergency savings fund, then you may want to consider creating a budget.

Or, you may want to consider starting a budget with You Need a Budget (aka YNAB).

YNAB is one of my favorite budgeting apps, which claims that new YNABers who used the app within the first 2 months saved $600, and that YNABers who used the app for the first 12 months, managed to save $6,000+!

That’s your secret key if you are struggling to save extra cash for your emergency savings fund. 

fiona smith the millennial money woman

The Bottom Line:

Assuming that you have no high-interest debt, the next step would be to build a solid emergency savings fund that should be in cash and equal to about 3 to 6 months’ worth of your living expenses. If you can’t find the extra cash to contribute to your emergency fund, then start budgeting.

3. Invest in the Stock Market

MMW Rating
5/5
Quick Overview

Risk Level

5/10

Who Should Do It

People who want to build long-term wealth

Why It Makes Sense

Investing in the stock market is an easy way to build wealth and earn compound interest

How to Start

- Open an investment account

- Set up a dollar cost averaging (DCA) strategy for automatic, recurring investments

Recommended Resource

Stock Advisor: The Motley Fool

Investment App for Beginners: Acorns

Investment App for Others: M1 Finance

The next step to optimize your $1000 is to think about investing in the stock market

In the stock market, you can use the dollar cost averaging strategy to build long-term wealth.

Think of the DCA strategy like your 401k retirement plan.

With your 401k you:

  • Automatically transfer a portion from your salary into your 401k
  • The portion is automatically transferred and automatically invested
  • The investments happen over a predetermined period into a predetermined stock or fund

In other words, you don’t have to think twice. 

It just happens.

I think of it this way: Out of sight, out of mind.

Here’s an example of how I would divide up my $1000 using the dollar cost averaging (DCA) strategy:

Amount to be Invested Timeframe of Investments Type of Investment

$200

Week 1

S&P 500 Index Fund

$200

Week 3

S&P 500 Index Fund

$200

Week 5

S&P 500 Index Fund

$200

Week 7

S&P 500 Index Fund

$200

Week 9

S&P 500 Index Fund

Here’s the deal:

  • I invested every 2 weeks
  • I invested $200 per transaction
  • I invested the $1000 over a period of 9 weeks
  • I invested in a low-cost index fund, in this case, the S&P 500 index fund

Guys – this is literally how I invest my personal money. 

It’s not rocket science and you certainly don’t have to be a Wall Street Wizard to do the same investment strategy as I just discussed. 

The trick is to keep your expense ratios low (the lower your expense ratio, the less you pay), which means your best bet is probably considering to invest in 1 of the following:

  • Index funds
  • Mutual funds 
  • Passive funds
  • Exchange traded funds (aka ETFs)

I’m personally a big fan of investing in index mutual funds, like the ones below:

Index Fund Name Index Fund Ticker Symbol Expense Ratio

Fidelity® 500 Index Fund

FXAIX

0.015%

Schwab® S&P 500 Index

SWPPX

0.020%

Vanguard® S&P 500 Value Index Institutional Shares

VSPVX

0.080%

The lower the expense ratio, the more money you’ll save. 

Keep this in mind: There are many, many other index funds other than the S&P 500 index fund. 

I am a fan of the S&P 500 because:

  • It’s diverse
  • It is used as a national benchmark 
  • It tracks the 500 largest US companies
  • It has generated long-term positive returns