What can you do with $1,000?
Quite a lot, actually.
With $1,000, you can rent a seaside cottage for a whole week.
With $1,000, you can buy two plane tickets to attend your college roommate’s destination wedding in Puerto Rico.
With $1,000, you can swoon over your favorite heartthrob from the front-row seat of a concert hall, squeal and sing (just slightly) off-tune alongside 25,000 other fangirls and fanboys.
With $1,000, you can…
Never mind! It’s the beginning of 2021, and COVID vaccines are being manufactured, distributed, and administered right this moment. However, we still can’t do any fun things involving people, traveling, or traveling with people.
Not yet anyway.
While we can pretty much all agree that Zoom weddings, virtual concerts, and watching “tropical beach ambiance” videos on YouTube can never measure up to real-life experiences, there is a better way to use that extra $1,000 you got.
Invest it!
Ultimately, there’s no better way to kickstart your 2021 than ensuring that you will be financially happier in 2022 and beyond.
Before You Start Investing
We need to cover a few ground rules before you dive headfirst into the crazy world of investing.
1. You should completely pay off your high-interest debts first before attempting to invest. Debt is serious (and expensive, if left unchecked) business. Your #1 priority should always be to avoid accumulating debt.
2. Don’t put the cart before the horse. You should have a well-stocked emergency fund (worth 3-6 months of expenses) and all your bills continually paid off before investing a single dollar.
3. Understand that investing is risky. So you should only invest money you don’t desperately need at the moment, because you might not get it back any time soon (or ever).
4. Know just how risk tolerant you are. Can you stomach the sight of your portfolio dropping 15% in value overnight? If not, you should build a balanced portfolio that contains a large percentage of risk-free investments.
5. Determine your investment goals and horizon. Are you saving up for a cushy retirement in 25 years? Or do you just need a safe place to store your vacation fund? If you hope to cash out your investment earnings within 5 years or less, investments with less volatility are your best bets.
6. Figure out how involved you want to be with your investments. Would you rather kick back and relax while someone else does the heavy lifting? Or are you salivating at the idea of hunting for investment bargains yourself?
I know that this is a lot of questions and conditions to throw at you all at once. Still, I promise investing is not that overwhelming (and can be pretty empowering) once you get a system going.
With that bit of necessary info dump out of the way, let’s discuss the 11 awesome ways you can invest $1,000 in 2021.
#1: Put It Into a High-Yield Savings Account
All savings accounts work the same way: you set some money aside in a savings account and get rewarded with guaranteed interest payments. The best part is that you will never lose any money you put in a savings account, unless, you know, the entire banking system collapses (at which point, we’d have way bigger problems to worry about).
But not all savings accounts are created equal.
A high-yield savings account is like a regular savings account that your bank offers, but better.
You see, most banks give you a measly 0.05% in annual interest on your savings. That means if you’ve got $10,000 in a savings account, at the end of the year, you will get a *drum rolls* whopping, jaw-dropping, life-changing five dollars! Hooray!
With a high-yield savings account, you could earn considerably more (as much as 3% a year). The same $10,000 would net you $300, which is enough to buy a year’s worth of self-care subscription boxes.
The best high-yield savings accounts are typically offered by internet-only banks that can deliver higher returns because of their low overhead costs (compared to traditional banks).
Bear in mind, these niche online banks are in a highly competitive industry, which means promotions are more common than sheep in New Zealand, so make sure to shop around to find the best deal for you.
All in all, a high-yield savings account is perfect for you if at least one of these applies to you:
- You are extremely risk-averse
- You need a safe place to park your emergency fund
- You’re saving up for a down payment on a house
- You have short-term savings goals (your dream wedding, a week-long vacation in Croatia, a new-to-you Tesla Model 3, etc.)
#2: Invest in Dividend Stocks
When public companies make a profit, sometimes they give a portion of it to their shareholders (i.e., people who own shares of their company). What shareholders receive is called dividends.
Not all public companies issue dividends.
I’m sure you’ve heard of Procter & Gamble, Johnson & Johnson, and 3M.
Unlike Tesla and Apple, these businesses are not known for their cutting-edge sexiness, but they’re dividend aristocrats, which is just a fancy way to say that they’re prominent companies that have not only been paying dividends since forever, they also have a long track record of increasing their dividends every year.
In layman’s terms, when you invest in great dividend stocks, you can expect to receive $$$ every month or quarter. And because you’re investing in insanely well-established (and often recession-proof) companies, volatility is less of an issue.
So what makes a dividend stock great?
- High yield (5% or more)
- Low payout ratio (60% or less)
- A history of raising dividends
- Strong financials
- An economic moat that helps to maintain competitive advantages
Because of its attractive returns and steady cash flow, there’s no shortage of investors who adopt dividend investing as their core investing strategy (i.e., their entire portfolio consists of dividend stocks).
Whether that appeals to you or not, I recommend that every experienced investor who wants to invest for the long haul add at least a couple of dividend stocks to their portfolio.
You should invest in dividend stocks if:
- You want to build more passive income
#3: Buy Real Estate Investment Trusts (REITs)
Buying Real Estate Investment Trusts (REITs) is one of the most affordable and convenient ways to invest in real estate.
Think of each REIT as a company that holds a bunch of commercial (like an office building on Fifth Avenue) or residential (like a student housing complex) real estate. For a regular person to personally own properties of this caliber would be near impossible (not with $1,000 anyway). But investing in REITs would allow you to partake in the profits of these mega real estate companies, in the form of dividends.
Most REITs are traded on major stock exchanges, so you can buy them like any other stock.
REITs come in literally all shapes and sizes. Together they offer one of the highest dividend yields, but are lackluster in terms of capital appreciation.
You should invest in REITs if:
- You’re an experienced investor looking to diversify your portfolio
- You value a steady stream of income over capital appreciation
#4: Invest in Exchange-Traded Funds (ETFs)
If you’ve been around the personal finance circle long enough, you’ve seen the saying “don’t put all your eggs in one basket” a gazillion times.
Well, when it comes to investing, ETFs are the antithesis of “putting eggs in one basket.” They are more like “putting eggs in ALL the baskets.”
Yup, that’s what ETFs are: a basket of stocks. When you buy 1 ETF, you’re essentially investing in hundreds or thousands of companies at once. This way, you never have to worry about any single one of these companies tanking, but you can still reap the rewards of market gains.
And let me tell you, buying ETFs is so easy. They are traded on stock exchanges, which means you can buy ETFs any time the stock market is open. Once you figure out which ETF(s) you want to invest in, you can just buy the same one(s) over and over again (no more research needed). It takes about an hour of your time each year, and you could achieve the same gains as (if not more than) people whose full-time job is to hunt for the next Amazon or Netflix stocks.
Don’t believe me?
Take SPDR S&P 500 ETF Trust (SPY), a popular ETF that tracks the S&P 500 Index. In 2020, this ETF gained an impressive 18.37%.
All this wonderfulness comes with a catch: ETFs charge an annual fee (called net expense ratio). But worry not, the fees are absolutely negligible. Take the ETF mentioned above (SPY). Its net expense ratio is only 0.095%. Considering this ETF gained 18.37% last year, a 0.095% fee is peanuts.
Speaking of fees, many online brokers charge no commissions for trading ETFs, which means you can trade ETFs as often as you like for free if you’re with the right broker.
You should invest in ETFs if:
- You are old enough to invest
#5: Invest With a Robo-Advisor
Super intimidated by this whole investing thing and super intimidated by humans as well?
Interested in investing but don’t want to spend a ton of time learning the ropes?
Prefer to surf in Huntington Beach than SeekingAlpha.com?
I’ve got the perfect solution for you: robo-advisor.
Robo-advisors are digital platforms that use proprietary algorithms to automate your investing for you.
All you need to do is answer a few questions about your financial goals, and deposit money every once in a while (this part can be automated too). Your personalized investing plan will work on autopilot.
Most robo-advisors even rebalance your portfolio and reinvest your dividends for you, without you having to click a mouse button.
All these services do come with a slightly hefty price tag. The management fee greatly varies from platform to platform. Last I checked, the range is around 0.15%-0.5% or $12-$250 per year. These rates are still far better than those of an old-school human advisor, so it might just be worth it for the convenience.
On top of that, robo-advisors often require very low opening balances, making it the perfect option for a $1,000 investment.
You should invest your $1,000 with a robo-advisor if:
- You like the idea of an “advisor” managing your investments on your behalf, and don’t mind paying a small premium for that luxury
#6: Try Out Peer-to-Peer Lending (P2P Lending)
If all these talks of ETFs, dividends, and REITs are starting to make you dizzy, worry not. This next investing idea will make you feel warm and fuzzy (I hope).
I’m talking about peer-to-peer lending.
It works just like it sounds: you lend money to local small business owners (your peers), who will slowly pay you back with interest.
At a time when local small businesses are struggling to stay open, I can think of no better way to support them than to offer direct financial help.
The biggest argument in favor of peer-to-peer lending is its attractive returns. It’s got the potential to beat the S&P 500, with a side helping of feeling good.
Now, there’re a couple of drawbacks to peer-to-peer lending:
- Lack of liquidity: you won’t see all your money back within 2 years or more
- It’s risky: borrowers can run into business troubles and have no means to pay you back
- Returns are subject to taxes: unlike investments made within tax-advantaged accounts, you have to pay taxes on your earnings from peer-to-peer lending
You should only try out peer-to-peer lending if:
- You want to show some love to local businesses (and the purple heart emoji isn’t cutting it for you)
- You have significant disposable income
#7: Invest in Municipal Bonds
This is another investing idea that risk-averse folks will love.
When a city needs to build a new library or extend its subway line, they sometimes issue bonds to finance these projects.
When you buy municipal bonds, you’re essentially loaning money to your local government, and get rewarded for doing so. The rate of return is pretty abysmal compared to other forms of investments, but bonds are incredibly secure. I mean, cities have defaulted on their bonds, but it’s ridiculously rare.
Another thing municipal bonds have going for it is the tax exemptions. Yup, if you’re a high-income earner in a high-tax country, I’m sure this just made you perk up. Please consult your country’s tax laws to make sure this is the case for you.
Why municipal bonds instead of corporate bonds (bonds issued by large corporations) or government bonds (bonds issued by a national government)?
Because municipal bonds pay better than government bonds but are more secure than corporate bonds.
You should invest in municipal bonds if you meet one of the following criteria:
- You are extremely risk-averse
- You want to diversify your portfolio
- You’re in a high-tax bracket (if municipal bonds are exempt from taxes where you live)
#8: Invest in Gold
Even though you can’t spend it and it doesn’t generate a cent of revenue, ever, gold has been valuable throughout history.
I guess no one can resist a shiny object.
Because of its inherent value, owning gold can protect you from inflation and deflation, diversify your portfolio, and boost your street cred (that last one may or may not be true).
Gold is also great at providing financial cover in times of geopolitical uncertainties, like the one we’re in right now.
You should buy some gold if:
- You have significant disposable income
- You’re looking to further diversify your portfolio
- You think the world is about to enter a recession or start a war
- Your local currency is rapidly losing value
#9: Invest in Art
Now we’re firmly in alternative investment territory.
Investing in art is absolutely not for everyone. Unfortunately, investing in art doesn’t get mentioned in the personal finance community nearly enough, so it deserves a spot on this list.
Of course, I’m not crazy enough (yet) to recommend that everyone starts bidding at art auctions (as much fun as it would be to hang a Pollock on your bedroom wall).
I’ve recently discovered Masterworks, which lets everyday investors buy shares of what they call “blue-chip artwork.” They even offer a secondary market (to US residents only) where you could resell your shares. The appreciation numbers that they’ve shown are undoubtedly impressive, but I have no data to back up their claims and no experience on the platform yet, so feel free to do more research if you’re interested.
You should invest in art if:
- You love and have deep knowledge of art
- You’re already heavily invested in stocks, real estate, bonds, gold, and bitcoin
#10: Launch Your Own Business
Starting your own side hustle business is all the rage these days.
With a dash of courage, a go-getter attitude, and some initial investment, anyone can become a micro-entrepreneur in their spare time.
It’s a smart way to hedge against losing your 9-to-5 job, hone marketable skills (that your day job could also leverage), and bring in extra revenue.
Not sure what business to start? Ask yourself what you’re good at and what you love.
- Enjoy writing? Start a blog!
- Artistically talented? Sell your creations via Etsy.
- Awesome at taking photos or modeling? Become an Instagram influencer.
- Good (or entertainingly bad) at playing video games? Live stream on Twitch.
- Got a charismatic personality and editing skills? Launch a YouTube channel or a TikTok account.
If none of the above options inspires you, you could always try Fiverr, a platform where you could offer any professional services you can think of (writing podcast scripts, creating character animations, developing mobile apps, etc.).
No matter what route you end up taking, you need some sort of web presence to build a social following, showcase your skills, and/or sell products.
This is where the $1,000 comes in.
With $1,000, you can get your own domain, hire someone to design an eye-catching logo, invest in camera equipment, subscribe to online tools, and launch marketing campaigns — all the basic things you need to get your business off the ground.
It might just be the best investment anyone can ever make.
You should start a side business if:
- You like the idea of creating a side business
- You have a lot of spare time
- You’re constantly worried about your job security
#11: Invest in Yourself
Bet you totally saw this one coming from a mile away!
The world is in a weird place right now. Tons of people lost their lives. Even more people lost their livelihoods. And almost everyone lost their connection to the outside world.
At a time like this, the best investment you can make for your future might be one that pays dividends in the forms of comfort, fulfillment, and career advancement.
$1,000 might not be enough to buy 1 share of Amazon stock, but that’s more than plenty to buy an ergonomic chair from Amazon that’ll make your work-from-home life comfier. Or, you know, enroll in an online class that’ll liven up your CV, or book a future spa getaway with your favorite people that’ll rejuvenate your spirit.
You should invest in yourself if:
- You feel like it!
Onward and Forward
2020 was a crappy year that we can’t wait to forget all about. And the best way to forget about the past is to look ahead, and plant the seeds for a better future when you can leave your house mask-less and have a brunch with friends without ever worrying about money.
I’ve outlined 11 ways you can invest $1,000 this year. As you saw, there’s a perfect investing strategy for every financial personality.
But ultimately, no matter what you choose to invest in, and no matter if that $1,000 will turn into $1,003 or $1,100 next year, you’re putting your best foot forward.
I hope 2021 will be a fantastic year for you.
