Looking for a place to put $1,000 right now? Here are nine ways to invest that offer different levels of risk and exposure to help you reach your goals.
An extra $1,000 can be a great way to start building wealth or give a boost to a portfolio you already have. You have a lot of options for how to use your money. You can add to your current plan or look into other ways to invest. Looking for a place to put $1,000 right now? Here are nine ways to invest that offer different levels of risk and exposure to help you reach your goals.
When you buy a stock, you are basically buying a piece of a company. This gives you a say in how the business does well or badly. Stocks can be bought in two main ways:
Brokerage accounts give you the freedom to start researching companies listed on the major stock exchanges, transfer money online from your bank, buy shares of public companies whenever you want, and keep track of your investments. When you have a brokerage account, you invest on your own, which means you choose the stocks you want to buy. Investors own managed investment accounts, but they are run by someone else, usually a financial expert. In the past, only wealthy people could get managed investment accounts. Tenjin AI is a new kind of investment platform that makes this kind of top-notch investment management available to everyone.
Exchange-traded funds (ETFs) are a type of pooled investment that is made to track an index, sector, or commodity. They are traded like stocks, so you can look into how each ETF has done in the past. ETFs can hold a lot of different stocks. Experts say that if a few companies don’t do well, your risk will be less than if you put all your money in one pick. There is still risk, though, just like with any stock market investment. Experts say that you should look into the best ETFs for your portfolio and level of risk tolerance.
You can buy ETFs directly from your brokerage account, or you can invest in a managed account or robo-advisor account that will buy ETFs for you.
3. 401(k) or IRA
401(k)s and IRAs are ways to invest, but they are not investments themselves. These tax-deferred accounts are meant to help people save for retirement. With a few exceptions, you can’t touch the money you put in these accounts until you’re at least 59 12 years old.
Usually, your employer will offer you a 401(k). An employee chooses how much of their salary should go straight into that account before taxes are taken out. An IRA is a type of tax-deferred account that isn’t tied to a specific employer. A bank, an insurance company, or a brokerage can help you set up an IRA.
Each of these accounts has a limit on how much you can put in each year, so experts recommend checking your current contributions to see if you can add more.
When you use a 401(k) or a traditional IRA to invest, you can get tax breaks:
You can take the money you put into these accounts out of your annual income, which can help you pay less tax today. In this way, these accounts help you pay less in taxes over your whole life.
You won’t have to pay taxes on any gains you make on investments in these accounts until you take money out during retirement. This could help you get more money more quickly.
The extra $1,000 can also be put in a Roth IRA. You can’t deduct the contribution from your taxes this year, but you won’t have to pay taxes on any gains, and you won’t have to pay taxes when you take the money out. To open a Roth IRA and put money into it, you must meet these income requirements:
For single taxpayers, the maximum contribution is less than $125,000.
Married filing jointly: maximum contribution less than $198,000
If you make less than $140,000 as a single taxpayer or less than $208,000 as a married taxpayer filing jointly, you may still be able to make smaller contributions.
4. Virtual currencies
Cryptocurrency is a type of electronic money. There are hundreds of different types of cryptocurrencies, and each one is worth a different amount. Bitcoin is the best-known (and most expensive) cryptocurrency.
Investing in cryptocurrency can help you diversify your portfolio beyond the stock market, since its performance is not tied to traditional markets. The crypto market is known for being volatile, though, and it takes some knowledge to understand how and when new coins can be made for each cryptocurrency.
You can buy cryptocurrency through a managed investment account, a brokerage account, or a cryptocurrency exchange. Most of the time, you have to leave the digital currency in your brokerage account. With a crypto exchange, you can store your currency in a crypto wallet, which gives you more security.
5. Peer-to-peer lending
Peer-to-peer (P2P) investing lets you lend money directly to consumers or businesses through online platforms. Then, when they pay back the loan, you get your principal back plus interest. The risk depends on who is asking for the loan. The lending platform will rate the credit risk of each possible loan, so you can choose how much you want to invest in each category.
The riskier the loan, the more interest you’ll pay on it. The downside is that most peer-to-peer loans are not secured. If a borrower doesn’t pay back what they owe, you have no way to get your money back. Instead of putting all $1,000 into one personal loan, you could spread it out over several loans to lower your risk. Experts say that you could also compare the average default rates of different P2P lending platforms.
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6. Real estate funds
Buying and managing your own rental property can be expensive and take a lot of time. You could instead put $1,000 into a real estate investment trust (or REIT). You can pick either a traditional REIT or an eREIT.
Old-fashioned REITs: These funds are available to the public. Each year, REITs must give their investors 90 percent of their taxable income. They can also take advantage of the 20% pass-through deduction. So, even though you’ll have to pay income tax, the returns won’t be taxed at the corporate level. This means that the company will have more money to give to investors.
eREITs: An eREIT is a type of REIT that isn’t traded on the stock market but still lets investors take part with a low entry barrier. The way each eREIT is set up is different, so experts recommend doing research on what you’re buying. Also, dividends aren’t guaranteed with an eREIT, so you might not get regular returns, especially if the company decides to reinvest in new properties. They are also much less liquid because there is no guarantee that shares can be redeemed.
All kinds of REITs can be risky, just like any other investment. For example, lockdowns during COVID-19 have caused a lot of damage to commercial real estate. Fees can also be different from one REIT to another.
7. Savings account that pays a lot
With a high-yield savings account, you will get an interest rate that is much lower than what you could get from other investments. However, your cash will be insured by the federal government and will be easy to access. You can withdraw the money whenever you want to use it.
When comparing high-yield savings accounts, there are some important things to look at. Among these are:
- Minimum opening deposit
- Cost of service per month
- The annual rate of return (APY)
You may be able to get a cash bonus if you do things like keep a certain minimum balance or sign up for direct deposit.
8. CD ladder
With a CD ladder, you can invest $1,000 in several different certificates of deposit, each of which has a different maturity date. The goal is to earn better fixed interest rates while keeping some of the cash available.
CDs have fixed rates, so you are stuck with them whether savings rates go up or down. Most banks have terms that last from a few months to five years. If you take money out early, you’ll have to pay a fee, which is why some people choose a CD ladder. You can spread your money out over different time periods. For example, you can put $200 in a CD with a one-year term.
- Put $200 in a two-year CD.
- $200 into a three-year CD
- $200 on a four-year CD.
- Put $200 in a five-year CD.
When the term of one CD is up, you would put the money into a five-year CD to get a higher interest rate. By the time your first five-year CD matures, each five-year CD will have matured every year. Then, you can either put the money back into the ladder to keep it going or take the money out.
A robo-advisor is an online investment tool that automatically manages the portfolios of brokerage accounts that pay taxes and retirement accounts that don’t pay taxes. Your current financial situation and your goals for the future will determine your target asset allocation. Economists and financial advisors build algorithms to help people make investment decisions that fit their current financial situation and goals for the future.
Don’t forget that algorithms don’t get rid of risk. Fees for robo-advisors are also likely to be a small percentage of your assets.
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