How To Invest Your First $1000 in 2024

Who is the fastest self-made billionaire ever? While it took warren buffet 55 years to join the billionaires club, Jay Walker literally did it in less than a year. He launched priceline.com during the dot com bubble, and his net worth instantly jumped from zero to billions. But that wasn't sustainable because when the bubble burst, his net worth crashed as well, while Buffet is still on the top of the list, and he doesn't seem to go anywhere anytime soon. And that's the kind of wealth you want to build. The game of money isn't easy. It's taught, competitive and ruthless, and if you don't know the rules, you are doomed to fail. The problem with most people is that they might work hard their entire lives but end up poor at the end of the journey because they don't know how to let their money make even more money.

In other words, they don't know how to invest. Let's assume that you have been saving money and have an extra thousand dollars in your bank account. That is an achievement because nearly 70 percent of Americans don't even have an extra thousand dollars in their bank account. So instead of spending it on another useless gadget or a pair of shoes that you will wear once and then keep in your wardrobe for many years before you finally throw it away, let's assume you are going to invest that money! But the question is, how do you invest your first 1K dollars? Do you invest it in real estate or the stock market? What kind of stocks do you buy? Is 1000 dollars being enough to start investing?

Let's say you worked so hard and saved 300K dollars, you can pay a visit to a Ferrari store and get yourself a luxuries car and let everyone know how successful are you or you can buy real estate (house) and rent it out. Every month you will receive at least 2000 dollars. If you decide you no longer what to keep receiving that 2K paycheck every month, you can sell it and get back your initial investment. In fact, the value of your investment might even appreciate, so you will sell it for a higher price. And that's how money makes money. But you can't buy real estate for a thousand dollars. That's not even enough for a downpayment; however, that doesn't mean you can't invest that thousand dollars elsewhere and let it grow.

The easiest way is to just deposit it into a savings account and generate interest, but why would the bank pay you for keeping your money in the bank? Shouldn't they charge you instead? No. You see, the bank is going to take your money and loan it to someone else at a higher rate and would share with a portion of that profit. That's how banks work in short. The only problem with this strategy is that interest on the deposits account is so low that it isn't worth it. The highest rate you probably can get is 0.8 percent. Which means that if you invest that 1k dollar into a savings account, 12 months from now, you will receive an extra 8 dollars. Which is extremely low because the Fed targets an inflation rate of 2 to 3 percent which means, if you are not getting at least 2 or 3 percent, overtime the real value if your thousand dollars will depreciate, which means you can buy with it less goods every year. But why are interest rates so low on deposit accounts?

Because interest rates, in general, are low this year since the pandemic forced the fed to lower them (interest rates) to encourage everyone to borrow money and spend. A year or two from now, once we get out of this recession, the fed will increase interest rates to 1, 2, or even 3 percent, which means interest rates on the savings account will rise as well. Your second option is to buy government bonds. A government bond is a security that is issued by the government to raise money to support government spending. Say the government wants to build a school, but it doesn't have the money to do that, so it issues an IOU, a piece of paper that says that whoever owns this security is owed this much amount of money plus interest by the US government. Of course, this is an oversimplified example, but that is the point in short.

Government bonds are heavily influenced by interest rates, so since interest rates are extremely low this year, government bond rates are less than 1%, but two years ago when interest rates were high, government bond rates were as high as 3 percent, which is not bad, since government bonds are the safest investments, you can ever make. Any investment carries with it a certain level of risk, if you are loaning money to the US government, what are the chances that the US government will default on its loan? For the US government to go bankrupt, the entire US economy might have to fail. That's why US bonds are considered the safest investments in the world. But if you want to make a higher return, let's say 10, 20, or 30 percent, then you have to consider investing in the stock market. For example, amazon's stock price increased by over 80 percent just this year.

Google's stock price rose by almost 30 percent. Tesla's stock increased by 721 percent. Yes, you heard that, right! 721 percent! Then the question is, why would anyone invest elsewhere when you can double or even triple your money in the stock market? The answer is RISK. When it comes to government bonds, for example, there isn't much risk. In fact, it is risk-free to certain extend. But when it comes to individual companies, there is a risk that the company might fail, it might report negative earnings, pretty much any negative news can drive the stock price down. The company might release a product, and if the public doesn't like it, that can make some negative headlines, which can drive the price down, so with higher returns comes more risk.

Apple is a well-established company and its chances to fail are way lower than Tesla, but it also has less room to grow than Tesla; that's why Tesla grew by 721 percent this year but apple by just 70 percent. What you have to determine for yourself is how much risk you can take without going nuts. If that 1000 dollars is all that you have left, maybe risking it all isn't the wisest option because if things turn south, you can end up losing most of it. So one-way investors minimize their risk in the stock market is by investing in an index. The most famous one is the SP500, which tracks top 500 US companies, so an index fund would basically invest in these top 500 companies. Some of these companies will definitely fail, but others will grow.

Judging by historical data, the average return rate for the sp500 since the 1920s was around 10%. This means, buying a share of these index funds means you are buying a tiny share in the top 500 us companies. My 3 top favorite index funds are VOO or Vanguard 500 Index Fund, QQQ and index fund by Invesco and Fidelity ZERO Total Market Index Fund. All of them are great and invest in pretty much the exact same companies. But how do you buy shares in these index funds? I mean, where do you start? First, you need to find a broker; someone is qualified to sell you stocks. In the past, it was always someone; you had to pick your phone and call him and ask him to sell you some shares. Remember the wolf of wall street? He would spend his entire day calling people and try to sell them worthless stocks. Brokerage firms created apps so that you can buy shares from the comfort of your smartphone, such as Robinhood, we-bull and so on. All you have to do is download one of these apps and sign up, and you can start investing right away.