How to Invest $1,000

That $1,000 burning a hole in your pocket could kickstart your investing.

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When you have $1,000, you have crossed an interesting threshold in investing. For example, an online brokerage that charges $10 per trade will charge that fee no matter how much you invest. That means if you only invested $100, your trading fee would come to a hefty 10 percent. At the $1,000 level, however, 10 bucks is only 1 percent. If you find one attractive investment for your $1,000, you can save on trading fees and have the potential for some significant growth.

Step 1

Open a trading account. You can open an account online with a discount broker. Fill out the forms on the broker's website. You can fund your account by mailing a check or by setting up electronic transfer privileges so you can send money from your checking account to your trading account. The forms take a few minutes to fill out online. Funding your account will take anywhere from three days to 10 days to complete.

Step 2

Find an indexed exchange-traded fund. An ETF is much like a mutual fund because it invests in a large basket of stocks, but you can trade it just like a stock on a stock exchange. You can find ETFs that follow specific indexes, such as the SPDR S&P 500 (SPY), which tracks the Standard & Poor's 500 Index ($INX); DIA, which tracks the Dow Jones industrial average; or the iShares Russell 2000 Index (IWM), which follows the Russell 2000 index of smaller companies. These ETFs only buy the stocks of their targeted indexes. Your investment will generally follow the direction of those indexes. You can compare the holdings and historical performance of these ETFs through financial websites such as Yahoo Finance.

Step 3

Buy one ETF. If you buy more than one, you will pay a trading fee for each ETF you buy, and this can eat up your investment fast. Focus on one, and buy enough shares to use up all but your trading fee. For example, if your online brokerage charges $10 per trade, you can invest $990. Do this by dividing your investment amount by the cost of one ETF share. If a share costs $26, divide 990 (from our example) by 26 and you find that you can buy 38.07 shares. Round this figure down to 38 shares.

Step 4

Hold your position. You can't afford to buy and sell frequently when you only have $1,000 to invest. You get charged a trading fee every time you sell, and then when you buy again. Ten "round trips" of buying and selling would cost you $200, for example. Your best chance for growth is to let your investment sit and wait for it to grow. Certainly, if you think a major market drop is coming, you can sell your ETF to protect yourself, but ride out the natural ups and downs of the market.