How to Invest Your Money in the Best Way
Let’s say you have exactly $1,000 and want to make an investment in the financial markets. Determining how to invest your money is an important decision.
What do you do? Should you invest $1,000 in stocks, futures, options or a combination? What’s the best way to invest $1,000 today? Here are 7 options for how to invest your money.
7 ways to invest $1000 (ranging from the worst to best ways on how you should invest your money):
Buy a Certificate of Deposit (CD)
Maybe it’s not fair to rate this traditionally conservative strategy as the worst investment on our list. But the fact is, at today’s returns, you’re almost guaranteed to lose money.
If inflation is 2% and your CD pays 0.5%, it isn’t hard to see that in real terms you’ll be in worse shape when it matures.
Plus, you don’t have access to the money in the meantime, so you’ll be out even more in missed opportunity if interest rates go up (which, economists universally agree, they will; the only question is when).
Buy Penny Stocks
When determining how to invest in stocks, some people think penny stocks make sense. $1,000 would seem to go a long way when buying stocks that are priced at less than a dollar.
The hype around penny stocks is that a) since they’re so cheap, there is no place to go but up and b) since the price is so low, you can buy lots of different stocks and you’re sure to find some winners.
Unfortunately, there’s a reason penny stocks are priced so low.
They are either obscure, thinly-traded (and near impossible to liquidate) companies or companies that have fallen far down on their luck. And they can still get cheaper—until their value is zero.
These are just a few of the reasons to to stay away from penny stocks.
Through the power of leverage, your $1,000 might control a futures contract worth as much as $15,000 or more.
However, your broker might require you to have additional cash available for margin calls, and if a trade goes south you could lose your entire stake and more.
OTA’s Don Dawson wrote a thoughtful piece in Lessons From the Pros with advice on trading very small futures accounts.
It can be done, but until you learn how to invest in futures contracts the risks probably exceed the
Like futures, Forex Trading (also known as FX or foreign currency trading) has a low price of entry; one online dealer will open a “mini” account for $25.
Forex is also an appealing asset class because it’s relatively simple to understand: most of the action is concentrated in just a few currency pairs.
As in futures trading, you can control far more than your actual investment through leverage, but leverage can also magnify your losses.
Options Trading allows you to control a stock or other asset and capitalize on its price movement without actually owning it. Because options expire in a few months (or even weeks) they’re priced low, far below the per–share price of the underlying asset.
Unlike futures, the most you can lose is your stake; there’s no threat of an additional margin call.
But like futures, options are a complex (though exciting) asset class and you need training and experience to trade options successfully.
Buy 100 shares of an established stock priced at less than $10
One option for how to invest in stocks with your $1,000 would be to focus on established companies.
Not long ago Ford and Bank of America were under $10, and Alcoa—a member of the Dow 30—is still well below that level.
Why 100 shares? It’s an "even lot" and is much easier to liquidate than a fractional block of shares.
Yes, you could buy one share of AAPL with that $1000 and have money left over, but selling it might take some time, and the commission would be the same as on 100 shares.
The Best Way to Invest - Don’t buy anything—until you invest in educating yourself about the markets
Many brokerages and platforms offer test accounts where you can trade with play money, the equivalent of Fantasy Football, until you become experienced with the ebb and flow of the markets and the behavior of individual ticker symbols.
Or $1,000 could be used to learn how to invest in stocks and other investment courses.
Online Trading Academy offers comprehensive trading and investing education for traders and investors of all levels of experience.
And you can get started for FREE by attending a half-day workshop in your area.
Get Started with Your Financial Education