The best way to invest $1,000 for most people is in a low-cost, diversified index fund, held in a tax-advantaged account like a Roth IRA. But before you invest, make sure two things are covered: you have no high-interest credit card debt, and you have at least a small emergency fund. Here is the order to follow and exactly how to put $1,000 to work.
Step 1: Check that you are ready to invest
- Credit card debt? Paying off a card at 22% is a guaranteed 22% return. No investment reliably beats that. Use our credit card payoff calculator to see how fast $1,000 clears it.
- Emergency fund? If a $500 car repair would go on a credit card, put this $1,000 in a high yield savings account first.
- Employer match? If your employer matches 401(k) contributions and you are not getting the full match, raise your contribution. That is an instant 50% or 100% return.
Step 2: Pick the right account
- Roth IRA: the best choice for most beginners in the US. Growth and qualified withdrawals are tax-free, and you can take out your contributions any time. Check you qualify in Roth IRA income limits.
- 401(k): if your plan has good low-cost funds, raising your contribution works too.
- Taxable brokerage account: for money you might need before retirement.
- Canada: a TFSA. UK: a stocks and shares ISA.
Opening an IRA or brokerage account at a large broker like Fidelity, Schwab or Vanguard is free and takes about 15 minutes.
Step 3: Choose what to buy
Option A: One total market or S&P 500 index fund
Simple and proven. An S&P 500 fund like VOO or FXAIX, or a total market fund like VTI, owns hundreds or thousands of companies for a fee of a few dollars a year. Compare them in FXAIX vs VOO and VTI vs VOO.
Option B: A target-date fund
A single fund that holds stocks and bonds and slowly gets more conservative as you near the year in its name, like a 2060 fund. It is the most hands-off option. Fees are a bit higher, usually 0.1% to 0.2% for index-based versions.
Option C: A global mix
Some investors split between a US fund and an international fund, for example 70/30. It spreads risk across countries and currencies.
What to avoid with your first $1,000
- Putting it all in one stock you heard about online.
- Options, leveraged ETFs and day trading.
- Putting more than a small slice in crypto. If you want some, see Bitcoin ETF vs buying Bitcoin.
- Funds with fees above about 0.5% a year.
Step 4: Keep adding
$1,000 left alone for 30 years at a 7% average could grow to about $7,600. That is good, but $1,000 plus $100 a month could grow to about $130,000. The habit matters more than the starting amount. Set up an automatic monthly investment, even a small one. Read dollar cost averaging explained for why this works.
Other good uses for $1,000
- Pay down a high-rate debt if you have one. Our debt payoff calculator shows the effect.
- Top up your emergency fund to three months of expenses.
- Invest in a skill that raises your income, like a certification. Over a career, a higher income usually beats any investment return on $1,000.
Frequently asked questions
Is $1,000 enough to start investing?
Yes. Most brokers have no minimums and offer fractional shares, so you can buy part of a fund. You can even start with $100; see how to start investing with $100.
Should I invest $1,000 all at once?
For $1,000, yes. Investing a lump sum right away has historically beaten spreading it out about two-thirds of the time, and the amount is small enough that timing hardly matters.
How much will I make from $1,000?
No one can promise a return. Over the long run, broad stock index funds have averaged around 10% a year before inflation, but some years they lose 20% or more. Only invest money you will not need for at least five years.
What about a high yield savings account instead?
For money you need within a year or two, yes. At 4%, $1,000 earns about $40 a year, with no risk of loss.
This article is general information, not financial advice.
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