- If you're investing your first $1,000 for maximum growth, try putting your cash in a Roth IRA.
- Financial planners also recommend choosing index funds or dividend growth stocks.
- To boost your earnings, spend that money learning a skill that makes you more valuable.
- Read more stories from Personal Finance Insider.
A friend recently asked me a question I wasn't so sure I knew how to answer. They had just put aside their first chunk of cash and wanted to invest it in something. After years of paying off debt, learning solid financial tips, and sticking to a budget, this was a big goal for them.
I'm still a rookie at investing. I've only been investing in stocks and funds for under two years and got into a committed relationship with my retirement account only recently.
Here's some advice from financial advisors on the four best ways to invest your first $1,000.
1. Choose a diversified index fund
If you want to invest in the market but don't want to buy individual stocks, financial planner Kenny Senour recommends investing in a low-cost, highly diversified index fund.
"Fees tend to be much higher in actively managed funds, so starting with a diversified, low-cost index fund may help you stretch your first $1,000 investment a lot further over the long term," says Senour. "Make sure that any index fund you choose aligns with your long-term goal and time horizon (when you will need the money) for your first $1,000."
2. Fund a Roth IRA
While you might be eager to invest that cash into something with immediate returns you can use, Senour recommends considering a Roth IRA.
"Using a Roth IRA to save for retirement can be ideal," says Senour. "Earnings from the underlying investments in the account grow tax-free, as long as you wait until after age 59 1/2 and the Roth IRA has been initially funded for longer than five years."
3. Go with dividend growth stocks
Keep an eye out for dividend growth stocks, which are stocks that are paying dividends and have been growing those dividends for a significant number of years in the past. According to Jonathan P. Bednar, II, a financial planner, dividend growth stocks are a smart way to make money now or use those dividends to reinvest.
"I look for companies that have raised their dividend for 25+ years, turn on dividend reinvest, and let the company do the heavy lifting," says Bednar.
4. Invest in your career
While it might sound like alternative advice to hear from a financial expert, Tony Grenier, a financial planner, recommends taking your first $1,000 and using the cash to enroll in a class that can increase your career value.
"You can enroll in data analytics or even in content writing courses so you can diversify your skills, then take on newer tasks at work," says Grenier. "You can also enroll in classes teaching you hobbies like creating crafts, which you can sell later on."
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