How to Invest with $1000
Having little money saved is the first thing that prevent us to begin investing, not only in the stock market but investing in anything. I was too under the false impression that in order to invest you needed to have $10,000 or more. Don’t get me wrong, I would have LOVED to have that amount of money when I started investing, it definitely helps, but I had to realize that we all have to start somewhere, and its better to invest a little bit of money than to not invest at all.
We need to change the “I don’t have enough mentality” and create a new investing and saving habit 😉
Where to begin
The first step to begin investing in the stock market with $1000 or less is to open an online broker account to begin buying and selling stocks. I would recommend to open your account with a brokerage that lets you buy ETF for free or at a really low cost. Some of those brokerage accounts are listed below:
- TD Ameritrade
- Scotia iTrade
- Virtual Brokers
Buy Stocks without paying fees.
When investing with $1000, one the things that you have to pay a lot of attention too how much you will be paying on fees, if your broker charges you $10 fee for buying stocks, and you want to buy $200 on a stock, that $10 fee represents a 5% of that $200. To rephrase this better, if you buy $200 in stocks, and you pay $10 for the trade, you lost 5% on fees. This means that if you want to make money from this investment, your stock needs to go up at least 10% to break even since you will be paying fees to buy and sell stocks.
This is the reason why ETF Investing becomes very important when you have a small account, you will not pay any fees to buy and sell this stocks. If you don’t know about ETF’s I encourage you to read the following posts
You can easily buy an ETF that tracks the performance of the overall US Stock Market for free and enjoy the returns of this stocks, even better, you will probably get paid dividends for holding this ETF.
Buy a few shares
This is one of the biggest thing that was preventing me from buying certain stocks, I was under the false impression that you could only buy full lots, which is usually a 100 shares. In this day and age this is no longer a thing and your online brokerage account will let you buy as many as 1 share! So, if you want to buy a stock where the share is $100, you can buy only 1 if that is what you want to do!
You might think “Oh, a $100 stock is really expensive, I don’t have that kind of money to invest, I want cheaper stocks”, if you feel identified with this please say out loud: “Is not about the share price, it’s about the stock performance”. There’s no difference if you buy 100 stocks for $1 each or 1 stock for $100, if both goes up by 10%, you will get $10 from both. As you can see, is not about the shares quantity, is about how much money you have invested.
Don’t buy too many stocks
It is known that you need to diversify your portfolio to reduce the risk and usually this can be achieved by holding 10 different stocks on your portfolio, and by different, I mean different sectors. Amazon and Google stocks are Technology stocks and usually follow the trend of the technology stocks, so if you hold only those 2 stocks, you don’t have diversified portfolio.
If you have $1000 to invest, I would not buy more than 2 or 3 stocks/ETF, this way the fees you will pay to buy/sell those stocks will not be big and you will still have some diversity on your portfolio.
Pay yourself first
Adding money constantly to your portfolio is key, especially if you have a small account. One of the easiest way that has let me achieved this is to set and automatic transfer between my checking account and my online brokerage account. I know that money can be tight but you need to save some money and its better if you do it automatically, if you never saw the money on your bank account, then you can never spend it!
Once you have some money accumulated on your online brokerage account, you can buy more stocks or ETFs. Don’t buy stocks every time you add money to your online account, especially if you have to pay fees to buy those stocks, this fees can easily add up!
I understand than having a small account will create the need to have explosive returns in order to grow the account fast. This is exactly what stock traders and penny stock traders try to do but it can be extremely risky, for every successful trader there can be thousands of other that lost all their money while trading.
Don’t buy the “hot stocks” and please don’t invest in penny stocks. You will not buy the next Amazon on a penny stock, we need to understand that penny stocks are NOT and investment. Penny stocks are usually companies near the brink of bankruptcy and have a lot of people promoting this stocks to take your money! Instead of gambling, get used to add some money every month to your brokerage account and increasing the amount of shares you own.
Understand “Why” you are investing.
The reason why I invest can be very different from your reason. “Making money” or “Become a millionaire” are not good enough reasons to invest, you need to set a goal while investing. This goal can be “Saving money for retirement”, “Having a College fund for my baby” or “To have $10,000 invested in 3 years”. Having a clear goal and timeframe will help you decide what type of stocks and ETFs to buy.
If you have a goal like saving money for retirement and assuming that retirement will be in 40 years from today, this will give you the ability to have a more volatile portfolio, but if your goal is to invest for the next 5 years, your strategy and portfolio volatility will have to be different. In case that you are wondering what volatility is, you can think about it as how fast a stock can go up or down.
I hope I got you a lot more interested about investing. Seeing your money grow little by little can be really rewarding! Please leave a couple words below and let me know what you learnt in this post. I’m always intrigued about what you think!