How to Invest 1000 Dollars in Stocks or Business
So you have $1,000 that you do not plan on spending in the near future and want to know the best way to invest it. You are a smart person, so you realize that putting it in a savings account, getting a CD, or purchasing bonds will yield at best a few percent return. Given that 1% of $1,000 is only 10 bucks, the effort of purchasing the CD or bond with just $1,000 is not even worth the time it takes to make the purchase. As a result, you have come here seeking an alternative place to put your money in order to make a meaningful return.
In this article, I will offer you two methods for investing $1,000 with the potential for much better returns than your average certificate of deposit or bond: stocks or buying an online business. Stocks are ideal for those looking for a passive investment, whereas buying an online business is a great way to invest money if you want to take an active role in increasing the value of your investment. Below, we will take a look at both in great detail.
Investing $1000 into the Stock Market
The actual act of investing money into the stock market is surprisingly easy to first time investors. The first step is to create an account on a stock trading website. On any trading site, be aware that there are trading fees. Discount brokers cannot buy and sell your stocks for free as otherwise they would have no way of making money. Each discount brokerage charges in the vicinity of $7-$10 per trade.
One free option is a new brand known as LOYAL3. You can actually buy stock (including fractional shares) in a select number of companies. They have a lot of the major brands (Amazon, Google, and Apple among others). You can sign up for an account here:
The downside to LOYAL3 is that they only execute orders about once per day. As a result, you do not get to put in a limit price but have to buy in at market value. Whatever the market closes at is about what you the price you will pay (if you are buying) or what you will get (if you are selling). If you do decide to join LOYAL3, use the banner link above. I will make a small commission on the referral, so it does help me out a lot and makes sure I can keep this site up and running with good free content.
Picking an Individual Stock
If you only have $1,000 to invest, you really can only afford to pick a single stock if you are using a discount brokerage like eTrade, Scottrade, or TradeKing. While the stock market itself is risky and investing in a lone stock is even more risky, consider that if you to split your $1,000 up amongst too many stocks, trading fees will kill your profits.
If you buy $1,000 worth of a single stock and it climbs 10%, it would be worth about $1,090 (you lose $10 buying the stock). If you sold, you would wind up with about $80 in return on your investment (losing another $10 on the sale to fees). You would lose $20 by buying and then selling the stock, which would soak up $20 of the $100 return you had earned on that stock. While the fees are significant, you would still net an 8% gain after fees.
Meanwhile, imagine if you had split that $1000 up 5 different ways, putting $200 into 5 different stocks. You would have to pay $50 initially to purchase all 5 stocks (each individual purchase counts for the fee) and then pay another $50 upon selling the stocks. If the stocks rose an average of 10% and you wanted to sell, you would end up with zero profit due to trading fees!
helps mitigate this problem, as TradeKing only charges a trading fee of just under $5 (unlike the typical $10 charged by bigger names like E-Trade. When you only have a small sum to invest, spending $5 on trading fees versus $10 makes a big difference.
As a result, you cannot afford to pick too many stocks but instead should settle on a single stock, at least until you can come up with more money to invest. Try to pick a stock with long term growth potential that may benefit from trends in the world. See my stock picking manifesto for more details, as picking an individual stock is beyond the focus of this investing guide.
I would recommend picking a company with huge future potential like Google (GOOGL) or a steady dividend stock is likely to continue growing over time (JNJ or PG are great choices, as they have provided steadily increasing dividends for many years). Note that discount trading brokerages will offer a “Dividend Reinvestment Program” (also called a DRIP) where dividend payments can be converted into fractional shares free of charge. You just have to turn on enrollment in your account settings at whichever platform you are using. DRIPs really help improve the long-term return on stocks, so make sure you select this option.
The only problem with picking GOOGL is that you stock prices do not always allow for even investment. GOOGL is currently around $550 a share, so you would either need to come up with an extra $100 to buy 2 shares at $1,100 total or just have 1 share at $550 and sit on $450 in cash. LOYAL3, as mentioned earlier, solves both problems. Firstly, you can invest as little as $10 in any particular company. This means you can buy $333 worth of GOOG, $333 worth of AAPL, and $333 worth of AMZN (Amazon), getting a fraction of a share of each. Also, since LOYAL3 has no trading fees, you can purchase all three without having to worry about losing all of your gains to fees.
While funds are not the ideal way to invest money due to low returns, many discount brokerages will allow you to buy into and sell out of funds with no trading fee. Instead, the platforms use a small percentage-based fee on the fund to collect their profit. This is a great way to save small amounts of money until you can get enough together enough cash to make a stock purchase worthwhile.
Imagine you bought $1,000 worth of a stock and want to invest more money. Let’s say you can afford to square away $100 a month for stock purchases. Rather than buying $100 worth of stock (and letting the $10 trading fee kill your return), you first have to save up to get enough money to make the purchase worthwhile. Rather than just let this money collect marginal interest in your savings account, you can set up your account on a discount brokerage to deposit $50 per paycheck into these funds with no trade fee. Once you save up $500, you can afford to make a stock purchase without fees hurting the returns too much.
As you continue to grow your stock investments, diversification is a good idea. After you invest your first $1,000 into a single stock, the next $1,000 should go into a different stock. The next $1,000 should go into a third stock. While there is always risk in the market, picking 4 or 5 different stocks across different sectors is a great way to protect your money in the long run.
Investing $1,000 into an Online Business
While investing into the stock market typically provides much better returns than a saving account or a bond, even the best-managed $1,000 is not going to make an individual rich. Even if you hit the market average for 40 years running, after taxes you would only wind up with about $14,000 from your original $1,000 investment. Hardly enough to retire on – based on inflation projections that will likely only be a few month’s cost of living!
If you have more time than you have money to invest, then you might want to consider investing in an online business by purchasing a website. Running a website is much easier than most would expect (especially if you follow the tips shown below) and can really pay huge returns with enough hard work.
Allow me to clarify what I mean by “investing in an online business” or purchasing a website. Let’s use this website right here as an example. When people
visit this site, ads are displayed, and I make money on this advertising as a result. As I continue to write articles for this website and my reputation grows, more and more people will come to see what I have to say. As more visitors come, I will make more and more money off of the advertisements. If I stop updating the site, I will make less and less money as my content becomes less and less relevant and people forget about my site.
You can do the same thing. Rather than starting a site from scratch, you can find one that shares your area of interest that is for sale and buy it. You could then update it yourself and continue to add articles much like I do to this website. For example, imagine you liked stocks and investing, you could buy a website much like this one (this one is not for sale – sorry!) and then continue to add new articles each day. It takes no technical skill to operate the website as it runs on WordPress (see next section for more details) – just the work of regularly adding new articles and content to the website.
Here is a video guide discussing how to go about picking a website and purchasing it via Flippa.com:
What to Look for in a Website
- Always buy .com. If you are in the US, always buy a .com domain. Even if you are in another country, you should stick to .com unless you are planning on selling a service locally in your particular country.
- Runs on WordPress. WordPress is a very easy to use free software that powers websites. This site uses WordPress. WordPress is extremely easy to use, so you can operate the site and add new posts with little technical knowledge. A lot of developers know how to use WordPress as well, so if you grew the site and eventually wanted to update the look of the site, you can find a designer to do this easily for you.
- Current Income. Typically a website in this price range goes for about 12x monthly revenue. The higher the site quality, the higher the multiple. You would want a site that already makes at least $50 per month before spending $1,000 on it.
- Method of Monetization. Look for a site that makes its money via advertising or affiliate offers. Avoid sites that make their money by selling a service that requires work.
- Domain Name Check. Search the domain (website’s URL) in Google as if it was one word. Do not include the .com. net, or .org extension. For example, if you were evaluating this website, you would type “howtoinvesthq” into Google search. Check to see if the website you are thinking about buying ranks as the first result in Google for this query. If the website you are thinking of purchasing does not rank #1 for its own name, avoid that domain as it very likely has a Google penalty. A lot of shady website owners that get their sites penalized by Google for violating guidelines will then try to unload those websites onto unsuspecting buyers.
- Seller Will Move the Site. Unless you have technical know-how, try to buy a site where the owner includes moving the site for you. You can also hire someone to do this for about $50 if the owner will not transfer it for you.
Finding and Purchasing the Website
You have two options for finding and purchasing websites: auction sites or manual search. Using an auction site is the easiest method to buy a site and Flippa is by far the largest auction site. Think of Flippa as eBay for websites. People are constantly buying and selling websites and domain names to the highest bidder. You can search around for a website that looks interesting and is fairly priced and put in a bid. If you win, you get the website. Websites tend to be fairly priced on Flippa, but you also will not find a steal here either as there are a lot of buyers.
If you want to find a great deal on a website, you will have to go hunting for one. Try searching terms in your area of interest on Google and look for old forgotten sites on page 2, 3, or 4 of the search results that have not been updated in awhile. Send the owner an e-mail via the contact form and ask them if it is for sale. Most people will not respond, but eventually you might find a good offer.
Sprucing Up the Website
If you are buying an old website, you might want to update the graphics a bit when you finally get the site in your hands. You can change the entire look of a WordPress site by installing a new theme. Themeforest.net is the biggest source of “premium” WordPress themes. You can get a lot of great looking website designs for around 30-50 dollars. This is much cheaper than hiring a developer! You can always come back and hire a developer a year or two down the road if you manage to grow the site significantly in the mean time.
Another good place to look for website help is Fiverr. Fiverr is a great source for graphic design for cheap. You can get a new header banner or custom image made for just $5 or $10. I have used them many times for websites that I own and have been happy with the work. Before Fiverr, I routinely paid $50-$100 for work that is of lower quality than I get on Fiverr for $5=$10!
Once you purchase the website, you will need to consider different exactly how you are going to generate revenue off of the website. Perhaps the best all-around source for monetizing a website is via Google’s Adsense program (this website uses Adsense). Adsense allows you to place Google Ads on your website and gives you a cut of the revenue. These ads are automatically generated to cater to the individual visitor, so it is a completely hands-off revenue stream.
Additionally, consider the Amazon affiliate program. You can link to Amazon products that you like or are relevant to your readers, and if the readers buy these products, you will be paid a small commission. While the percentage is low, people who order on Amazon tend to buy a lot of products, and you get commission on their entire order. Commissions can add up quickly, especially considering how well Amazon converts browsers into buyers!
Finally, consider other third-party affiliate programs. Search for your niche’s name plus “affiliate program” and you will find all sorts of things you can promote on your website for commission. Test and experiment and find what works best for you.
Building Out the Website
Once your website is up and running and monetized, all that is left to do is to build it out. Add new content, post regularly, and cover more topics. Monitor your comments section (make sure comments are enabled) and engage with your readers. If you add just one article a day, you will have over 300 posts after a year’s time. This makes for quite a large website and can be very profitable for you if you just stick to it.
If you only have $1,000 to invest, your options are limited. Bonds and CDs do not provide enough interest to generate any noticeable return on just $1,000. Instead, the stock market is the only viable traditional passive investment opportunity. However, due to trading fees, you will have to pick 1 or 2 stocks in order to prevent buying and selling fees from killing your investment’s potential return. After you invest your first $1,000 and begin saving to invest more, consider investing small amounts into funds until you can save up $500-$1,000 and then make your stock purchases all in one block.
Even if you make great returns on your investment, the initial $1,000 is never going to be able to add up to a life-altering sum of money. If you have time to invest in addition to your money and are willing to take a risk and learn something new, consider buying an old website and fixing it up. Starting and owning your own online business is easier than you think and the returns can be many times larger than market average!Source: www.howtoinvesthq.com