How to invest your first $1000
By Tanner Yarton
Introduction:
Young people today are facing a rapidly changing financial landscape, with new opportunities and challenges around every corner. With the rise of technology and the increasing need for financial literacy, it's more important than ever for young people to take control of their finances and develop smart investing and saving habits. Financial freedom and responsibility are key components of a successful financial future, enabling individuals to build wealth, achieve their goals, and live the life they want.
Being a young adult myself, I remember fondly how I began to invest and what I did with my first $1000. In this article I will go over my key takeaways and lessons learned along the way. For my young adults out there, remember there is no better time than now to begin working towards your financial and life goals.
Account structure:
Before we get into this, Id like to preface with a disclaimer:
The ideas and strategies talked about in this article are my own. I do not recommend anything and am simply showing how I would structure a $1000 portfolio for a young adult. Do your own due diligence and never take information from only one source.
Ok, now that the SEC is off my case lets dive in. The first thing any individual should do before making investment or financial decisions is paying down debts. Credit card, student loan, vehicle loans, you name it.
Once all the aforementioned are taken care of, lets get to that $1000.
Step 1: Foundation
Find an index fund to park away some of that money. This can be done in an IRA or a typical brokerage account (Robinhood, E* Trade ect.) I personally like:
VTI 0.00%↑: total stock market ETF, contains hundreds of the best companies across all sectors
5 year return: 78%
VYM 0.00%↑: High dividend Yield ETF, Better for older individuals with a lower risk tolerance
5 year return: 47% (non adjusted for dividend reinvestment)
SSO 0.00%↑ : leveraged ETF for those with a greater risk appetite
5 Year return: 170%
This is what’s called a portfolio foundation. Safe, long term investments designed for growth in the long haul. It may not look like much, but as money is added into this account, that growth is exponential! Personally, any money I make goes here first, as this is my retirement account.
Step 2: Individual stocks
For individuals that are new to the market, picking a stock can be daunting. Will it go up, down, bankrupt…? these are all fair questions at the early stage. Someone wise told me at a young age to invest in what I know. Think about where you shop, where you buy clothes, eat, entertain yourself ect. This is a great place to start! Below is a compiled sheet of popular companies many use in their everyday life:
Coca Cola, Lululemon, Google, Louis Vuitton, FedEx, Starbucks… the list goes on!
Pick a few to start and either buy partial shares or a few whole shares if they’re cheap. Robinhood has a partial shares program where you can invest however much you want, regardless of the stock price. This is a great way to get an introduction to managing a mini portfolio. As your total assets grow, and you continue to add more money into the account, you can add more companies to your portfolio.
At this stage, I would have about 30-40% of my $1000 invested in safe holds, and 30-40% invested in individual stocks. Over time, it’s wise to weight heavier into safe holds, as they are easier to manage and hold without checking in on the portfolio.
Step 3: Get creative!
With the remaining funds, try learnings something new in the market. When I was first starting out, I took some of my investing funds and began learning technical analysis to actively trade stocks. Whether it was finding up trending stocks I hadn’t heard of, or going back to some I had, this cheap learning experience definitely helped me find footing in the market, and grew my portfolio much faster than the above mentioned ways.
Another way to use extra cash that isn't related to the market is investing in education. Purchasing books, software, and other learning materials to acquire a new skill will not only benefit you, but also enhance your resume, which is crucial for job seeking as a young adult. In the job market, hiring departments often receive hundreds of similar resumes, but what sets applicants apart is the extra effort and investment they make outside of school to gain specialized skills in their field.
Closing Notes:
Making the first step towards financial freedom and literacy can be difficult, but with a proper setup and consistent deposit strategies, it can be fun, exciting and beneficial to your future.
The first $1000 is just a small step in the grand scheme of things. As you get a job, begin to budget and contribute to these accounts, the possibilities extrapolate tremendously, from real estate to commodities and other diversified investments.
There is no better time to start than now.
That’s all for this one everyone!
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Tanner