How To Invest Your First $1000 (Step by Step)

Who is the fastest self made billionaire ever while it took Warren buffet 55 years to join the billionaire’s club. Jay walker literally did it in less than a year. He launched priceline.com during the dot com bubble and his net worth instantly jumped from zero to billions. But that wasn’t sustainable because when the bubble burst his network crashed as well. Buffet is still on the top of the list and he doesn’t seems to go anywhere anytime soon.

That’s the kind of wealth you want to build. The game of money isn’t easy. It’s tough, competitive, and ruthless, and if you don’t know the rose, you’re a doomed to fail.

The problem with most people is that they might work super hard their entire lives but end up poor down of the journey because they don’t know how to let their money make even more money. In other words, they don’t know how to invest.

Let’s assume that you have been saving money and have an extra thousand dollars in your bank account. That is already an achievement because nearly 70% of americans don’t even have an extra thousand dollar.

So instead of spending it on another useless gadget or a pair of shoes that you would wear once and then keep in your wardrobe for many years before you finally throw it away, let’s assume that you’re going to invest that money.

But the question is, how do you invest your first thousand dollars? Do you invested in the real state or the stock market? What kind of stocks do you buy? Is $1,000 is enough to start investing? we are going to answer all of these questions and many more. So let’s get start.

To understand what investing is and how does it works, consider this example. Let’s say you worked so hard and saved $300,000 you could pay a visit to a Ferrari store and get yourself a jealous car and let everyone know how successful are you or you can buy real estate and rent it out. Every month you will receive at least $2,000.

If you decide that you no longer want to keep receiving the $2,000 paycheck every month, you can sell it and get back your initial investment. In fact, the value of your investment might even appreciate, so you will sell it for a higher price, and that’s how money makes money. You can’t buy a real estate for $1,000. That’s not even enough for the down pay.

However, that doesn’t mean you can’t invest $1,000 elsewhere and let it throw. The easiest way is just to deposit it into a savings account and generate interest. But why would the bank pay you for keeping your money in the bank? Shouldn’t they charge you instead? No.

You see the bank is going to take your money and loan it to someone else at a higher rate and will share with you a portion of that profit. That’s how banks work in short. The only problem with this strategy is that interest on deposits account is so low that it doesn’t worth.

The highest radio probably can get is 0.8%, which means that if you invest $1,000 into a savings account, 12 months from now, he will receive an extra $8, which is extremely low because the FED targets an inflation rate of 2 to 3 percent which means if you’re not getting at least two or three percent over the time, the real value of $1,000 will depreciate, which means you can buy with it less goods every year.

Why interest rates are so low on deposits account? Because interest rates, in general, are low this year since the pandemic force the FED to lower them to encourage everyone to borrow money and spent. A year or two from now, once we get out of this recession, the fed will increase interest rates to one or two or even three percent which means interest rates and savings account will rise as well.

Your second option is to buy government bonds. A government bond is security that’s issued by the government to raise money to support government. Say the government wants to build a school, but it doesn’t have the money to do that. So it issues an IOU, a piece of paper that says whoever owns the security is all this much of money plus interest by the US government.

Of course, this is an oversimplified example, but that’s the point in short, government bonds are heavily influenced by interest rate. Since interest rates are extremely low, this year, government bond rates are less than 1%. But 2 years ago, when interest rates were high, government bonds rates were as high as 3%, which is not bad since the government bonds and the safest investment you can ever make.

Any investment carries with it a certain level of risk. If you are loaning money to the us government, what are the chances that the us government will default on its loan for the us government to go bank? The entire us economy might have to fail. That’s why us government bonds are considered the safest investment in the world.

But if you want to make a higher return, let’s say 10, 20 or 30%, then you have to consider investing in the stock market. For example, Amazon stock price increased by over 80% just this year. Google stock price rose by almost 30%. Tesla stock increased by 721%. You heard that right? 721 percent.

Then the question is, why would anyone invest elsewhere when they can double or even triple their money in the stock market? The answer is risk. When it comes to government bonds, for example, there isn’t much risk.

In fact, its risk free to a certain extent, but when it comes to individual companies, there is a risk that the company might fail. It might report negative earnings, pretty much any negative news can drive the stock price down. The company might release a product and if the public doesn’t like it, that can make some negative headlines which can drive the price down. So with higher returns comes more risk.

Apple is a well established company and its chances to fail is lower than Tesla for example. But it also has less room to grow than Tesla. That’s why Tesla grew by 721% this year, but apple by just 70%.

What you have to determine for yourself is how much your risk you can take. If that thousand dollars is all that you have left, maybe a racing it all isn’t the wisest option, because if things turns out, you can end up losing most of it.

One way investors minimize the risk in the stock market is by investing an index. The most famous one is the S&P 500 which tracks top 500 us companies. So an index fund would basically invest in these top 500 us companies. Some of these companies will definitely fail, but others will grow. Judging by historical data, the average return rate for the S&P 500 since the 1920s was around ten per. Buying a share of these index means you are buying a tiny share in the Top 500 us companies.

My three top favorite index fans are voo or vanguard 500 index fund, triple queue an index bond by Invesco and fidelity zero total market index fund. All of them are great and invest in pretty much the exact same companies. But how do you buy shares in this index fund, I mean where do you start?

First you need to find a broker, someone who is qualified to sell the stocks. In the past it was always some you have to pick your phone and call him and ask him to sell you some share. Remember the wolf of Wall Street, he would spend his entire day calling people and try to sell them worth the stock. But thank god, we are in 2020 and things are much better and easier.

Brokerage firms created apps so that you can buy shares from your smartphone. Such as Robin Hood and so on. All you have to do is that download one of these apps and sign up and you can start investing right away.

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