Where Should A New Investor Put $1,000 To Work In The Market?

by Hank Coleman

I asked 12 of the best personal finance bloggers and money experts best way to invest money to get an idea of where to start investing.

“What is the best way to invest money for a brand new investor? Where should a brand new investor put $1,000 to work in the market?”

And, I was not disappointed by their answers. Here are what they said…

There are several options for a short term cash investment.The Best Way to Invest Money for a New Stock Investor

J Money from Budgets Are Sexy – It’s always hard to advise someone the best way to invest money without knowing them at all or their comfortableness with risk, etc, but I know for me (a more riskier type of guy) I enjoy investing in stocks of companies I either use or love every single day because I believe in them.

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My wife, however, prefers to invest in more conservative long-term funds and thus goes with you typical index funds out there. She likes to earn “on average” and I like seeing the big spikes and sometimes even lows 😉

So I’m gonna cop out of this answer and say it really just depends on what makes you comfortable with this stuff, BUT the fact you’re wanting to invest $1,000 in the market is GREAT. So I think you’re on the right track already just in reading this right now.

Phil Taylor from PT Money – If that person has paid off their high interest debt and they have adequate cash savings (i.e. emergency fund) then I’d take that $1,000 and place it in a low expense index fund or low expense target date retirement fund. Either investments I would stash inside a Roth IRA.

Ryan from Cash Money Life – Investing can be like a complicated topic — there are literally thousands of ways to invest your money. When faced with so many options, it can seem impossible to make sure you are investing in the right places. One of the first things you should do is take a few moments to write down your investment goals – this will help you decide how and where to invest. If you have a short term outlook, you might want to avoid stocks altogether, and opt for more stable investments that will preserve your cash.

More stable investments come at a price, however, and often generate lower returns. If you have a longer time frame (such as retirement), then you should consider investing in the stock market, where there is more risk, but also a greater chance for higher returns. While it is a good idea to invest in the stock market, it is generally best to avoid investing in single stocks until you have a larger investment portfolio and more knowledge about how to value individual stocks.

In general, it’s good for first time investors to start with low cost index funds or Exchange Traded Funds (ETFs), which offer a low cost way to purchase a piece of the stock market, often by owning a fraction of a share of hundreds of different companies. Investing in these types of funds helps you reduce your risk of overexposure in any one stock. But don’t stop there.

Investing isn’t something you can do once and leave alone. It’s a good idea to continue learning about how investing works, and to set up automatic investments through your 401k, IRA, or other retirement plan. As you learn more about investing, you may decide to branch out into other investment opportunities.

Jeff Rose from Good Financial Cents – Assuming that they have no consumer debt, then I sending them straight to a Roth IRA with an online brokerage like Scottrade as the best way to invest money. As far as the actual investment, I would have them start with a stock mutual fund or ETF until they feel more comfortable exploring other investments.

June Walbert, CFP from USAA Anyone – whether they have money or not –should have an emergency fund in place before looking to start an investment account. Assuming you have that in place, I think a diversified portfolio provided in an asset allocation or target retirement fund is a great place to start. It doesn’t seem very flashy but it’s financially fundamentally sound. It’s a great way to dip your toes into the investment world.

Jeremy from Modest Money – When most people first get into investing, it is probably best to start off with mutual funds.  Usually people simply do not have the expertise to properly monitor stocks to know when to sell.  With mutual funds, professionals will monitor their holdings and make adjustments if necessary.  I personally invested in mutual funds for years, but am now ready to take the next step and move onto ETFs, bonds and individual stocks.

Shane from Beating Broke – Start small is the best way to invest money. Whatever you may think about the level of your knowledge and skill with investing, you’re wrong. Until you get started, there are many nuances that you won’t have a full grasp on and it could end up with you with a heavy loss. Learn as you go, and slowly grow your investments as you learn more about what it is that you’re doing.

Miranda from Planting Money Seeds – I’d start out by put the money in an index fund or an index ETF. There are a number of great options, they are easy to invest in, and they are low cost. They’re great for beginners. Plus, you can diversify a little. You don’t need to put the whole $1,000 into a single fund, and it’s also possible invest in dividend index funds that offer payouts as well. It’s always a good idea to do a little research to find what works best for you, but index funds are a good place to start.

Money Beagle – I think the first $1,000 should be used to lay a foundation for future investing.  As such, I would advise that they go for something that’s low cost and low maintenance, such as an S&P 500 Index Fund.

Edward from EdwardAntrobus.co.cc – I’m a big fan of dividend paying mutual funds, especially when enrolled in a DRIP. They are a lot less volatile than stocks and the dividends are just free income that dribbles in.

Stephanie from Empowered Dollar – I think the best way to invest money for a first time investor is with a low cost index fund.

SB from One Cent At A Time – $1000 for short term (1 – 5 years) – Short-term the goal should be to preserve the capital first. So I’d go towards CD ladder, corporate short-term fixed income papers or treasuries. If I have $10,000 to invest for 2 years I’d also put a part into P2P lending to increase the rate of return. But I’d not put more than 20% in it. I’d not go into anything else but stock with $1000 for longer term (6 and beyond).

If you are good at picking stock go for direct stock buying, else, go for index fund or sector mutual funds.Some foreign exposure is also good for longer term. I will not have more than 30% in bonds and absolute no investment in CDs or saving accounts. One point though, don’t try to put your first $1000 in investment, save enough in emergency fund and then invest the residual money.

What about you? Where would you put $1,000 to work for you if you were a brand new investor? What is the best way to invest money for a brand new investor?

Where Should A New Investor Put $1,000 To Work In The Market?

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 586 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 8 comments… read them below or add one }

thestarvingartistcanada

Mutual funds were the worst mistake I ever made… It cost me about 10 years of wasted investing time and several thousand dollars of losses. This period of time was through 3 boom/bust cycles as well as being overseen by 3 different financial advisers. The fees on most mutual funds are way to high to be helpful to anybody except the company that is selling you the product.

My $0.02: Most mutual funds are best to be avoided. Index ETFs or Index Bond ETFs are a great way to start. Many brokerages in my country (Canada) offer commission free trading on many of them in this segment.

Reply

Hank Coleman

I’m a fan of good no-load mutaul funds. But, with your very FIRST $1,000 investing in the market, you can’t go wrong mirroring the stock market and economy with an index fund. However, I think that we are making a mistake lumping all mutual funds in with your bad experience.

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Mr. Everyday Dollar

Wow. Everyone besides J Money is saying to stuff it into an index or mutual fund.

I understand investing is a complex – and controversial – matter but I would disagree with the general sentiment here.

Since 2000, funds haven’t really done well. The Fidelity flag ship fund Magellan has underperformed the S&P500 significantly since 2000 and the S&P500’s return has been dismal for the period.

What about buying a few shares across products or services that *you* use; that way you can get excited about your holdings. Pick healthy companies with increasing revenue and earnings and a healthy balance sheet. These are the companies that are safe and will be around for a long time – Apple, Chipotle, Coach, Starbucks, Panera, Whole Foods. Plus, when you go into one of these places you can say “I own part of this!”

Investing should be fun, and lucrative. Owning a fund is neither.

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Earth and Money

Funds exist though, and are popular, because the average investor is not prepared or capable of assessing individual stocks as investments. Investing in funds provides a safety net to protect people from making bad investment choices. A bad investment in an individual stock can be much worse than a bad investment in mutual funds.

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Hank Coleman

I love your idea, Mr. Everyday Dollar. I really do. The problem with finance and investing is that the average American finds it boring. Lets face it, compounding interest in an index fund is not sexy. It doesn’t get youir blood pumping. For that reason alone, I can see you point about wanting to get excited about investing from the start. Have a great experience the first time investing….and you’re hooked!

As for J. Money….I would expect no less than for him to go slightly against the grain! LOL…the mowhawk says it all.

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Bridgette

I completely agree with you. I’ve done will by buying stocks in companies that I would like to be apart of…you can call it brand recognition. Sometimes it pays to take risk. I can’t see myself paying $600 for a purse, but I can see myself spending $600 on coach stock. Odds are one would loss more money on the stock.

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Melissa

Thank you for this. I am a new investor and I don’t have a lot of money to invest. In all, my savings account for less than 10k. I was thinking of just taking 1,000 of it and playing around.

I’ve been leaning towards mutual funds, but after seeing the comments, I’m not too sure. I wouldn’t go all for funds, as I’d like to get some experience in stocks.

I see what Mr. Everyday Money is saying about investing in shares that you actually partake in-from everything I’ve read, those stable, long-term companies are great to invest in. However, when it comes to Apple, why would you invest more than half of that $1,000 into ONE share? It doesn’t seem like a good idea, no matter how prolific the company is.

My grandpa has invested in mutual funds for decades now and is still making great money from them. I guess it just depends what funds and what broker you go through. I’ve heard more success stories with funds than I’ve heard bad about them.

I want to start investing now, but I know I should start an emergency fund. The money I do have saved is for a downpayment on a house. I’m working on the money situation and I also have some consumer debt-not to mention I’m a college student trying to pay for college as well! There’s a lot to consider before moving my money into the market.

Reply

Hank Coleman

Melissa, you bring up some great points. Saving an emergency fund should be your’s and everyone’s top priority first and foremost. A down payment fund is not the same thing as an emergency fund.

Reply

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