Sometimes the idea of building wealth through investing seems impossible. This can be especially true if you have little savings and little extra income to invest with.
If that’s you, you might think that investing with smaller amounts of cash is pointless. However, the truth is that even if you start investing with only $1000 you can build wealth. Your investments still have the potential to grow to six or seven figures.
I remember reading a story one time about a couple in their sixties who were millionaires. When asked about how they got to millionaire status, they had one simple piece of advice. They said, “We started by saving only ten dollars a week. We never dreamed our savings would grow to this magnitude”.
Are you feeling like it’s useless to start saving and investing because you have very little money to begin with? If so, don’t give up just yet. No matter how much money you have to start with, you can build an investment nest egg.
And you can build one that’s big enough to fund your financial dreams. You just have to start by choosing some of the investments we’ll talk about below.
How investing $1000 can turn into over $400,000
To begin, the first rule of smart investing is to understand the power of compound interest. Check out the chart below. Most people think that investing is of no use when you’re starting with a smaller amount. However, compound interest is a powerful tool no matter how much cash you are starting out with.
Let’s say you started an investment account with just $1000. You added $25 per month to the account and gained a ten percent rate of return each year. In fifty years you would have nearly $400,000!
You see, the awesome thing about investing is that it doesn’t matter how small of an investment you start with. Given some time, compound interest will grow your money like crazy. So the key is simply to start, no matter how small your initial contribution. And no matter how little you contribute monthly. The truth is that it all adds up over time.
Using the chart above as an example, it might seem like 50 years is a long time to invest and wait just to reach $400,000. However, let’s say you start investing early, say at age eighteen. The $400,000 you would accumulate by age 68 might mean the difference between retiring and not retiring.
No matter how much (or how little) you have to invest right now, just start saving. Chances are you’ll be able to increase your monthly investment amount as time goes on. This means your nest egg could grow to proportions you never thought were possible.
The same is true for other types of investments. Let’s say you invested in a business. Compound interest growth may not apply. However, if you work hard at growing your business, you can compound your monetary returns from that business.
Decide Which Types of Investing are Best for You
Before you start investing, you need to know a bit about the different types of investing. You need to know what you’re getting into before you put your money down on the table. So check out different types of investments. Work to determine which types of investments are most suited to your risk tolerance and your knowledge base.
Start reading up on the different types of investments (there are thousands of articles on the Internet). It will help you learn to decide which investment avenues might be best for you. Also, take some time to figure out how long you want to invest the cash before you want to use it. Some investments do better over the long term even though they may seem volatile during the short term.
The general rule is that the shorter the time you want to invest the cash, the lower risk you should take. Diversifying your investments is also important. You should be wary of putting all of your money into one investment. Be careful not to put all of your money into one company’s stock or other singular investment.
Instead, lean toward “basket” type investments. These include index funds, mutual funds or real estate-based funds such as Fundrise. Fundrise helps people invest in real estate via a crowdfunded approach. Although they do require $1,000 to start, it is one of the least expensive ways to start investing in real estate.
Diversifying your investment choices will help protect you from market downturns. It will also help protect your money from economic ups and downs, whether personal or global. Now we’ll talk a little bit about a few different types of investments.
Investing in the Stock Market
It’s smart to check out the fine print when investing in the stock market with small dollar amounts. Brokers who charge high fees can eat up the profits of beginner investors real fast. However, when done right, beginner investors who start investing with smaller dollar amounts can grow some serious wealth. You can build wealth through the stock market by purchasing stock funds, index funds, etc.
Education is key before you start socking money into the market. Luckily, the Internet is filled with great articles explaining the ins and outs of stock market investing. Also, there are great books on investing by experts such as John C. Bogle and Warren Buffett. Read books and articles by investing experts. This way you can begin to understand how to make money through the stock market.
Beware of get-rich-quick schemes and other promoted methods that promise big profits overnight. Smart stock market investing involves a “slow and steady wins the race” mentality.
And it also involves sticking with your investment through the ups and downs of the market. In addition, beginner investors will want to choose a brokerage account that they can manage themselves online. This is especially true if you’re starting with a smaller amount of cash. These types of brokerages charge little or no fees. So this way you can be sure that as much of your money as possible is used for growing wealth.
Here are some options for stock investment accounts for beginner investors.
One of my favorite investment companies is Ally Invest. I like them because they allow you to begin investing with no account minimum. Also, stock and EFT trades are as low as $3.95 each. Ally Invest is considered a “self-directed” investment firm, which means they don’t provide investment advice.
Instead, they provide custom charts and other investing tools to help you analyze trades and performance. This way you can learn to make your own educated choices about what to invest in.
With Ally Invest, you can access your investment account via multiple types of devices. This allows for easy and convenient investing. In addition, they also keep you aware of the latest investing information. They do this with live news streaming information.
Betterment is another company that offers stock investment accounts. One of the cool things about Betterment is that they charge you zero for transaction fees and trade fees. Since they will actually give you investment advice, they’re a little different than Ally Invest. They base their advice on your risk tolerance and how long you have to invest.
Betterment charges an annual fee, but it’s super affordable (0.35% on accounts with balances below $10,000). This is a benefit for clients who make a recurring account deposit each month of at least $1000.
Motif can also be a great option for you as a beginner investor. There is no account minimum at Motif for investing in individual stocks or EFTs. However, to start investing in a motif (a basket of up to thirty stocks or EFTs), you’ll need a minimum balance of $300.
With traditional investment accounts, you have to pay a fee per stock that you purchase. However, Motif allows you to create a fund with up to 30 stocks for just $9.95. That is almost a $300 savings compared to if you were planning on buying individual stocks.
Online Savings Accounts
Online savings accounts are an option to make money if you are nervous about investing in the stock market. Most banks pay next to nothing. However, CIT Bank pays up to 2.15%, which is much higher than you’ll find at any local bank. You won’t get rich by investing only in high-yield savings accounts. But you will get paid much more than you would at most traditional banks.
Investing in Peer-to-Peer Lending
Another less traditional investing option is peer-to-peer lending (often called P2P lending). Peer-to-peer lending companies such as Lending Club and others like it work differently than banks. With P2P companies, investors choose to lend money to those seeking personal loans.
Loan applications get analyzed and approved by the peer-to-peer lending staff. Then those loans are offered to investors who can contribute all or a portion of the loan amount to the applicant. Detailed information about the loan applicant (such as credit score and payment history) gets shared with potential investors.
When investors open a Lending Club account, money is withdrawn for loans as the investor chooses. They lend money to borrowers after reviewing the borrower’s credit and other facts. When a borrower makes a loan payment, you (the investor) get paid back – with interest.
It’s important to be aware of the fact that you can lose your cash in a peer-to-peer lending investment. If a customer you choose to loan money to decides to stop making payments, you’ll lose your investment. However, many people choose to invest in peer-to-peer lending and are happy with the results. Proceed with caution if you choose this route.
No matter which of these investing routes you choose, you can start earning money on your cash. But only if you’re willing to take the plunge and open an account. And luckily, many of these businesses will let you invest even if your account only has $1000 in it.
Investing in a Business
Many people choose to grow their money by investing in a business of some sort. Some people choose to invest in an existing business, while others choose to start their own. Personally, I have found success with business ownership by starting an SEO company.
Investing in a business can be costly, but even those with only $1000 to invest can make money with their investment. In the case of my SEO company, it cost very little up front to start. This is because the business involved using my skills. I could share my knowledge with people and help them get better rankings with their websites. And I only needed my knowledge and my laptop.
Fortunately, there are many business startups you can do with only $1000. Consider Chris Guillebeau, author of The $100 Startup: Reinvent the Way You Make a Living, Do What You Love and Create a New Future. He wrote a book sharing what he learned from interviewing over 1500 business owners. And each business owner started their businesses with a smaller amount of capital.
In many cases, the successful business owners that Chris interviewed spent no more than $1000 on their startups. And his interviewees weren’t all people with special skills. They were ordinary people like you and me. As Chris states in his book, they simply “discovered aspects of their personal passions that could be monetized.”
You never know; maybe you’re one of those people. You might be able to turn doing what you know and love into a business that grows into unimaginable wealth.
I’m not saying that this will happen without a lot of hard work. Growing a business always involves hard work. However, if you are willing to put in the time, you might be able to grow a successful business even without having to put down a lot of cash up front.
Investing in Yourself
Another way to consider growing your $1000 into a lot more is to invest in yourself. By that, I mean invest in yourself to learn more about how to grow your skills, and eventually your net worth. You can do this in a number of ways.
- Purchasing books to learn about investing or business ownership
- Taking online courses to learn a new skill, like Kayla Sloan’s 10K VA Course
- Taking in-person classes to learn a new skill
- Joining an investment club or another networking group that aligns with your interests
The more you learn about money, whether earning, saving or investing, the more tools you have to grow wealth. In fact, in Thomas Corley’s book, Rich Habits, he shares that 88% of wealthy people read at least 30 minutes every day. And they’re not reading rag mags.
Instead, they’re reading books that will educate them on improving their skills. So consider investing your $1000 in yourself and see where it leads you.
Pay Off Debt
This is one investment I can’t overstate enough. When my wife and I were first married, we were sitting with over $52,000 in consumer debt. It was like a weight hanging over our heads.
Through a lot of hard work, we paid off that $52,000 in debt in just 18 months. That one (albeit tedious) step has led to exponential wealth growth for us. Putting an extra $1000 (or $1000 per month) toward debt may not seem like it will do much good.
But I promise you that it will add up because you’ll be paying less interest on the debt over time. And once you’re debt free, you’ll have more money to save and invest.
The Importance of Contributing Regularly
Contributing regularly to your investments is definitely one of the keys to successfully building wealth. And it doesn’t matter if you’re only contributing a small amount. Of course, contributing more money each month helps. The more money you put into your investment accounts each month, the more compound interest can work to grow your wealth.
But the habit of making monthly investments is the most important thing. Consider making a habit of contributing to your investment accounts on a regular basis. Do this by treating them like a bill.
Talk to your bank or investment firm about setting up an automatic transfer. They’ll transfer money each month from your bank account to your investment account. This will help you to make regular deposits on the same day every month.
Automatic investments will help you eliminate the need to think about investing each month. It just happens magically for you. But if you leave your investment deposits as a non-automated “choice,” you might not make the investments. Instead, you might find yourself making excuses for why you can’t contribute. Bills will come due, as will the chance to spend the money on other things.
However, if you choose to treat your investment account like a bill, you’ll “set it and forget it.” When you automate savings and investments, you can train your mind to forget the money ever existed. So you’ll probably find your investment growing at a more rapid pace than you had imagined it would.
And your future self will thank you as the account grows trying to reach the six and seven digit figure range. In the process, you’ll create a more secure future for you and your loved ones.