All information in this article is not investment advice and should not be construed as such.
If you are anything like me, you are wondering the best ways to invest 1000 dollars. It has never been easier to invest, and millennials may reap profits over the coming years. With the stock market rallying and real estate costs soaring, many young investors are experiencing massive FOMO (Fear of Missing Out). When you look at stock market statistics, you’ll notice that there are only a little over half of US adults are investing in the stock market.
However, you need to be safe and smart about how you invest. One wrong move could undo years of gains and set back your retirement plans.
Best investment options for millennials
Young people typically have a larger risk appetite, but you still want to choose where you invest your money wisely. Investing in slowly appreciating assets like bonds might be safe, but you will see virtually no growth and can jeopardize your retirement plans.
The investment vehicles below have historically been profitable and relatively stable, perfect for long-term investing.
Company 401k
Although this first option is the least exciting, the traditional 401k is the best overall investment in terms of simplicity, security, and return on investment.
Companies offer these investment programs exclusively for their employees, allowing them to allocate a portion of their paycheck to ETFs and mutual funds. These funds typically align with a worker’s expected retirement date, such as a 2050 fund.
Historically, investing in target-date funds can net 6% to 10% annually. As the date approaches, the fund will shift investments from risky stocks to bonds to preserve wealth, eventually only average 2% to 4% per year.
Best of all, many companies offer a 401k match for their employees. For each dollar you invest, the employer will match your contribution. Although many companies only match up to a certain percentage of your annual contribution, these programs offer an instant return on investment.
You can read my guide on How to Save for Retirement to learn more about 401ks, IRAs, and other traditional investments.
Real estate
Buying a house is a major component of the “American Dream,” but owning real estate is much more important than simply fulfilling this shared goal. No matter where you go in the world, real estate is one of the safest investments.
Zillow reports that the average price of a house in the United States increased by 5.8% since last year. The company also predicts home prices to rise by 7% in 2021. This ROI is a tad lower than what you might get on the stock market, but unlike shares in a company, homes are physical assets that you control. Even if the economy experiences a downturn, you can make improvements to your home to increase its value when the economy rebounds.
Millennials are in an excellent position to invest in real estate thanks to historically low interest rates for mortgages. With a standard 3% down payment, you can buy a house for simple appreciation or rent our rooms to turn a monthly profit.
If home prices are too high in your area, you can also use websites like Roofstock to buy and sell investment properties.
Auto investing platforms
Sometimes, it is hard to consciously plan out your investment strategy. Comparing funds and deciding how much to allocate can be time-consuming and confusing. Wouldn’t it be great if someone could do it for you?
Well, you’re in luck! There are now a handful of apps that automatically contribute money to an ETF. These platforms let you set a recurring allocation to auto-invest for you each week, but they also link with your bank account to invest spare change.
With programs like Acorns, you invest a portion of your spending each time you use your credit or debit card. If you buy something for $10.50, the app will send 50 cents to your account. Over time, these pennies add up and will create an appreciating nest egg.
Investment Options to Avoid
Far too many people invest in depreciating assets that leave them poorer than before. While buying a car is necessary, seeing these assets as investments is a major money mistake.
While the following two financial tools can help you make money, they should not make up a significant portion of your portfolio.
Savings accounts
Banks offer saving accounts that earn interest. These often seem appealing, but the numbers don’t add up. Common bank interest rates are lower than the annual rate of inflation, meaning that your money actually decreases in value by sitting in these accounts.
Granted, you should keep some cash in a savings account so you can cover emergency expenses and build up liquid capital for large items like down payments.
Stock options
Popular apps like Robinhood now make it exciting and easy to buy stocks, but this quick access has led to a concerning trend. Many young people are buying risky stock options because of the incredible earning potential. It is not uncommon to see people doubling their money in one day.
However, there are many news stories of people who made thousands on a single trade only to lose everything within minutes. Losses like these are unimaginable, but they happen every day.
For the novice and intermediate investor, buying stock options is more like gambling than investing. There are too many variables at play that could cause you to lose everything or even put you in debt.
