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How should you invest $1,000, if you had the extra cash? Is that enough to make a meaningful investment? Here’s what six financial advisers suggest doing first.
Build an emergency fund
“With $1,000, I’d keep it simple,” says Joon Um, a certified financial planner with Secure Tax and Accounting in Beverly Hills, Calif., adding that the first thing anyone should do with that kind of cash is to “make sure you have some emergency savings—if not, that is probably the best use of it.” (You can see top savings accounts here, from our ad partner Bankrate.)
Indeed, regardless of how much money you have to invest—”$1,000 or $1 million”—Marcos Segrera, a CFP at Evensky & Katz Wealth Management in Coral Gables, Florida, says the first question any investor should ask is, “Do I have an appropriate level of cash reserves?” If not, he adds, “building a sufficient emergency fund should be a top consideration. They give you the ability to take risk,” he says, adding that “it feels expensive to hold cash until the moment you need it. That cash drag is worth it.”
How much should you add into this account? “Ideally this should be between six and 12 months of core living expenses,” says Flavio Landivar, a CFP at Evensky & Katz Wealth Management in Coral Gables, Florida, adding that this “can be kept in a high-yield savings or money-market account.”
Pay down ‘high-interest debt’
“If you have high-interest debt, paying that down can be an even better move,” says Um. “At this level, it is more about choosing the best option to have your money work for you, and building the habit second.”
Fund a retirement account
Another option, especially after funding an emergency fund, is investing in a retirement plan, says Landivar—especially one you can optimize from a taxable standpoint. “Examples are 401(k)s, IRAs, Roth IRAs, etc., depending on your situation,” says Landivar. “Within these accounts you can invest in various funds between stocks and bonds. Having an idea of your personal risk tolerance is very important as this can serve as a primary indicator of investing either in bonds or stocks, or a combination.”
Invest in stocks or an index fund
If you can check off the box for a functioning emergency fund, Um says a no-brainer approach is investment passivity. “I’d just put it into a broad index fund and get it invested, no need to overthink it,” says Um. “If you’re nervous about timing, you can spread it out over a few months, but the main thing is just getting started.”
For his part, Nick Covyeau, a CFP and founder of Swell Financial, says that “it is the classic, ‘it depends.’ If you have time on your side, step back and let quality stocks and compounding do the work,” says Covyeau. “There is no one-size-fits-all approach, but I’d emphasize—on the equity side—investing in quality companies with strong brands, essential products, and manageable debt. These businesses tend to be more resilient regardless of the inflation environment.”
If you go this route, Segera says to remember that the stock and bond performance of yesterday doesn’t indicate where they will go tomorrow. “U.S. stocks have crushed everything else for 15 years. When does that stop? Last year, a meaningful portion of returns came from international markets, and so far this year we’re seeing a similar theme with emerging markets and smaller, more value-oriented companies,” says Segera, adding that wherever you ultimately decide to invest, “don’t overallocate to one area of the market. Make sure you are building a portfolio that lets you participate in the overall innovation to come. Build a plan and stick to it.”
Consider bonds and CDs
For those who are more reluctant to take on any additional risk, Covyeau says fixed-income may be the way to go. “For those who need a little more stability, TIPS and I-Bonds can complement that, not replace it,” he says, adding that “the closer you are to retirement, the more your plan matters as much as your portfolio.”
Nicholas Bunio, a CFP at Retirement Wealth Advisors in Berwyn, Pennsylvania, agrees that knowing how to invest really depends on an individual’s immediate financial situation. “If it is for short-term needs, put it in cash or bonds or a CD,” says Bunio, adding that this approach can buffer against unexpected volatility. “Regardless of market values, or inflation, sudden shocks can and will happen to the world.” (You can see top CDs here, from our ad partner Bankrate.)
