How To Invest $1000 or Less

invest $1000

It’s Easier Than You Think

Many people hear the word “invest” and automatically move their hands over their pockets to make sure their money is still there.  I was one of these people. I was so afraid to lose my money that I never even considered the potential earnings I could gain by investing.

Investing is risky and anybody that tells you otherwise is not telling you the truth.  But you can minimize that risk by knowing how to invest and where to invest.  Picking the right funds or stocks and having a solid asset allocation strategy doesn’t eliminate the risk that you will lose money, but it can minimize it to the point where you can sleep soundly at night.

You definitely take a risk when you invest in anything, but investing in the stock market is one of the best ways to grow your money.  It is also one of the best ways to have your money work for you.

There are others who think you need a lot of money to start investing and I’m here to tell them… no you don’t.

What To Do Before Investing

It should go without saying, but I’ll say it anyways, before you start investing money you should do a few things.

  • Pay off your debt – Before you start investing, you should be debt free – at least free of consumer debt; having a mortgage is fine and student loans are debatable.  But it doesn’t make sense to be paying 14% interest on credit card debt because that’s a 14% loss, and don’t nobody want that. (The grammar is okay in this situation).
  • Have an emergency fund – The amount you should have in your emergency fund is up to you, but you should have some money stashed away in case of emergencies.
How To Invest $1000 or Less

You can start by opening an online brokerage account.  The difficult part will be picking the right brokerage because they all have different minimum balance requirements.

Vanguard and Fidelity are great brokerage, which I use, but the minimum balance for most of the accounts are $1000 and $2500 respectively.

You can, however, open an account with a discount brokerage such as Scottrade or E-Trade.  These discount brokerage will allow you to open an account with less than $1000.

We have accounts with Vanguard, Fidelity, and Scottrade, and found Scottrade to be the easiest to set up.  With Scottrade we were able to start investing right away, but with Vanguard and Fidelity we had to wait a couple of days until they could verify our bank accounts.

I would recommend that you stick to buying indexed mutual funds and/or indexed ETFs because the fees are a lot lower.  If you decide to purchase individual stocks, be aware that there is a fee involved per trade which can put an initial dent on your investments.

For example, if you only invest $100 and you pay $7 for that purchase, you are down 7% from the get go.  But if you invest $1000 and you pay $7 for the purchase, you’re only down 0.7%, which is a lot easier to recover from.

You can also buy shares or fractional shares directly from the company through a Direct Stock Purchase Plan (DSPP).  There is no minimum balance required when you use a DSPP because you don’t have to open a brokerage account, and the fees to purchase are very minimal, if any.

You don’t call the company directly to purchase shares, instead you deal with a transfer agent the company has contracted to manage the sales of shares.  The two major transfer agents are Computershare and BNY Mellon Shareowner Services, but there are others as well.  You can check out the investors relations section on a company’s website to find out if they offer a DSPP plan and who their transfer agent is.

Another way you can start investing with less than $1000 is by buying fractional shares.  Services like Sharebuilder allow you to open an account with no minimum required.  Once you have your account, you set up an Automatic Investment Plan which allows you to invest in any stock, mutual fund, or ETF on a weekly, bi-weekly, or monthly basis.

You can decide any amount of money you want to spend and Sharebuilder will invest it for you in the stock, mutual fund, or ETF of your choosing.  If the amount you invest is not enough to buy a full share of a particular stock, Sharebuilder allows you to buy a partial share and you can slowly build your shares, hence the name.

Start Investing Now

Investing might sound scary and you might think only rich people can do it, but that’s just not the case.  You should read some books and do some research and you’ll find out how easy it really is.

I prefer and recommend to invest in indexed mutual funds and ETFs because the fees are low and the risk is also lower, but we also have money invested in individual stocks.  Whichever way you choose to go, make sure you plan to be invested for the long term and give your money a better chance of growing.  Remember that you have the force of compound interest at your side but only if you give it time.

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  1. I love your point about being debt free. It’s so exciting to start investing but really, you should clean up your own mess first.
    Natalie @ Financegirl recently posted…You Don’t “Deserve” To Go On VacationMy Profile

  2. Kipp says:

    Oh if you haven’t heard of Loyal3 that seems to be a decent way to invest in a few stocks with limited capital. I have recently read on several blogs people using them and I hope to try it out soon myself.
    Kipp recently posted…Net Worth Update – JulyMy Profile

  3. Not only stick to funds but stick to ETFs. Pick a broad one like SPY where you’ll earn whatever the market does AND pay minimal fees.

    Jay @ recently posted…The Very First Bubble: Tulip Mania!My Profile

  4. I agree that before you start investing, you should be debt free. I think we all want to have our own investment, but in order for us to be succeed, we should pay all our debt first before we jump to a higher level.
    Clarisse @ Make Money Your Way recently posted…Earning more to crush your debtMy Profile

  5. Investing is risky, but not as risky as some people think. There are just so many complicated options out there and it is hard to sort the good from the bad. And then the media loves to report the Bernie Madoff stories where these poor widows lost everything and people just hold on tighter to the money to the money they put under their mattress. If you do it properly, you’ll come out way ahead in the long-term by investing.
    Autumn @ The Barefoot Budgeter recently posted…Money Won’t Buy You LoveMy Profile

  6. My first investment move was to open a ROTH, get it funded, and buy some ETFs. It’s been working out quite well in terms of appreciation.
    Stefanie @ The Broke and Beautiful Life recently posted…What Gives Worth vs. What Gives JoyMy Profile

  7. I like how nowadays there are plenty of options to invest your money even though you don’t have a lot in capital. Great article, good starting point for anyone who wants to invest but don’t have tons of money.
    Suburban Finance recently posted…One Cheap or Even Free Form of EntertainmentMy Profile

  8. I really wish I had started investing when I was younger. I used to think of it as buying low and selling high, rather than buying ownership shares in great companies. Another good option is Loyal3, which has $0 fees, and is great for dollar cost averaging into a few funds. The options are limited, though.
    Ryan @ Impersonal Finance recently posted…5 no-effort ways to save money todayMy Profile

  9. Yes good advice I’ve done all the investing options you mentioned above except Scottrade. I think many people can invest, they just get worried and never make it happen. I like to place my money to work, and having that mindset makes it easier to risk it.

  10. Solid advice! The thing I’ve tended to see is people believing they can’t invest when they have little to start out with, but there are options out there. Quite a few in fact. I know a few others have mentioned Loyal3, Motif Investing is another good option as you can start with as little as $250. At any rate, the key is to get started and even if it’s in a few shares of an index fund you’ve jumped one of the bigger hurdles by simply starting.
    John @ Frugal Rules recently posted…Discover it® Card Review: A Good Option to Have in Your WalletMy Profile

  11. This is really interesting, You are a very skilled blogger.
    I’ve joined your rss feed and look forward to seeking more of your great post.

    Also, I’ve shared your website in my social networks!
    Spencer Lodge recently posted…Spencer LodgeMy Profile

  12. Erik Flores says:

    Good advice there! The thing I’ve tended to see is people believing they can’t invest when they have little to start out with.
    Have you tried other platforms any checking which one has the lowest commissions?
    Thanks for sharing