How to Invest $1,000 in 2022
One of the biggest reasons many people don’t invest is because they feel like they don’t have enough money to put into the market. The fact is, you don’t need tens of thousands to invest right from the get-go. Many people are amazed at how easy it is to invest with just $1,000. Putting that money into the right investment vehicles can go a long way toward kickstarting wealth accumulation, especially if you add to it. The million-dollar question is how to invest $1,000.
Investing $1,000 in 2022 is a lot different than investing $1,000 even a decade ago. The market changes over time, and it’s important to account for new trends and thematic developments that can dictate the earning power of your money while it’s invested.
Below are a few smart ways to invest $1,000 in 2022. But first, let’s look at the state of the market, to create context for why some asset classes are better than others for new investors today.
A Quick Overview of the Stock Market in 2022
2022 is off to a rough start for the stock market. Major indices like the S&P 500 are down more than 10% and continue to see volatility. Geopolitical tensions, supply chain struggles and inflationary concerns all loom large over most sectors, driving down market performance as even the biggest companies struggle. And, in a rising rate environment, even promising growth stocks find themselves hamstrung.
Investors continue to drive the market; however, consumer confidence has plummeted. It’s a telltale sign of a stock market melt-up, and an impending meltdown. As a result, many investors have begun to seek safe haven investments and look for more stable assets in the face of impending downturn. Those wondering how to invest $1,000 in 2022 should follow suit.
Option 1: Sector-Driven ETFs
Sector-driven ETFs are a great first-time investment for anyone seeking to get a handle on how investing works. A basket of stocks, ETFs allow an investor to hold stake in many different companies without buying individual stocks. As a result, they’re partially insulated against volatility from any one single company.
Sector-specific funds allow investors to invest in what they know, be it finance, healthcare, utilities, or another industry. With many ETFs priced between $50-$100, it’s possible to build a strong position in several funds with $1,000. Best of all, ETFs offer better liquidity and lower expense ratios than mutual funds. These funds offer a hands-on chance to learn the ropes, while putting $1,000 to work efficiently.
Option 2: Real Estate Investment Trusts (REITs)
For investors who want to see immediate returns from their $1,000 investment, REITs are enticing. Like ETFs, there are plenty of different REITs to choose from based on the types of properties they focus on or the nature of the fund’s holdings. With significant dividend payouts built into the REIT asset class structure, new investors can set up a DRIP and watch that $1,000 quickly grow.
The important thing for new investors to remember is that the IRS taxes dividend payouts as income. While a sizable dividend may look appealing, it can also come with tax implications. The good news is that REITs are often looked upon as a safe-haven investment, which means less volatility to worry about.
Option 3: Dividend Aristocrats
If you’ve got $1,000 and want to invest directly in stocks, Dividend Aristocrats are the way to go in the current market. These are companies that’ve paid a dividend for 25 consecutive years (many of them longer).
While growth stocks may present an enticing prospect, they involve a lot of risk in inflationary markets. Large, long-tenured dividend-payers, on the other hand, are typically much safer. Best of all, these are household names: stocks that beginners can feel confident investing in because they have familiarity with them. The downside? They typically have higher share prices, which means owning fewer shares or fewer companies based on your $1,000 budget. Nevertheless, these are strong buy-and-hold companies.
Option 4: Index Funds
When in doubt, invest in index funds. Many new investors index themselves because it’s the simplest way to gain stock market exposure. Better still, those learning how to invest $1,000 will find that their investment goes pretty far in a fund like the Vanguard Total Stock Market Index Fund ETF Shares (VTI) or the iShares S&P 100 ETF (OEF). These funds are priced lower than index funds like SPY, QQQ or DIA, and offer the same relative benefits in terms of indexing.
Indexing isn’t the sexiest investment option, but it’s one of the best ways to put limited funds to work in a way that allows new or inexperienced investors to “set it and forget it.” Investors can also explore Vanguard Funds like MCG, VV and ESGV for more affordable ETFs that offer exposure to distinct segments of the market. Just be sure to check the expense ratio and fees on any fund before investing.
Stay Abreast of Market Conditions
Investing $1,000 doesn’t just put you on track to begin compounding your wealth; it also encourages you to learn more about what you’re investing in. As you seek to expand your financial knowledge and become a more accomplished investor, make sure you also subscribe to an investment newsletter that can help keep you up-to-date on the market and its trends. The more you know, the better you’ll feel about investing your next $1,000!