How To Invest Your First $1002 (Step by Step)

Okay, who holds the record for becoming the fastest self-made billionaire? 

Anybody know? 

Well, it took Warren Buffet 55 years to become a billionaire, while Jay Walker achieved this feat in less than a year after launching priceline.com during the dot-com bubble. 

Although his net worth skyrocketed to billions, it was short-lived as the bubble burst and his net worth plummeted. 

In contrast, Buffet remains at the top of the billionaire list and shows no signs of moving anytime soon. 

That’s the kind of wealth you should aim to build. 

The world of money is challenging, competitive, and merciless, and those who do not understand its rules are bound to fail. 

Many people work hard all their lives but end up struggling financially because they do not know how to make their money grow. 

In other words, they lack investment skills. 

Let's say you have saved up an extra thousand dollars in your bank account. 

This is a commendable achievement as nearly 70% of Americans do not even have a thousand dollars in their bank account. 

Instead of spending the money on useless things, let's assume you will invest it. 

But how do you invest your first $1,000? 

Should it be in real estate or the stock market? 

What stocks should you buy? 

Is $1,000 sufficient to start investing? 

We are gonna go ahead and answer these and many other questions in this article. So, please share it if you enjoyed it, and let's begin.

The Concept

To grasp the concept of investing, consider this illustration. 

Imagine that you've worked hard and saved up $300,000. 

You have two choices: spend it on a fancy car like a Ferrari, show off your success, or use it to purchase a house and rent it out for a steady monthly income of $2,000. 

You could sell the property in the future if you don’t want the rental income anymore, and its value might have even appreciated, allowing you to make a profit. 

Now, this is an example of how money can make more money through investment. 

However, $1,000 is not generally enough to buy real estate, as it isn't even sufficient for a downpayment. 

Nevertheless, you can still invest that $1,000 elsewhere to watch it grow.

The Simplest Way

The easiest way is to deposit it into a savings account and earn interest, but why would the bank pay you for keeping your money with them? 

Don't they usually charge fees? 

Actually, the bank takes your money and loans it out to others at higher rates, sharing the profits with you. 

That's how banks operate in a nutshell. 

However, the problem with this strategy is that the interest rates on deposit accounts are so low, it's not worth it. 

The highest interest rate you can expect is probably 0.8 percent, which means that if you deposit $1,000, you will only earn an additional $8 after a year. 

That’s a very low return, particularly since the Federal Reserve aims for an inflation rate of 2 to 3 percent. 

This implies that if you're not earning at least 2 or 3 percent, your $1,000 will lose value over time, and then you'll be able to buy fewer goods with it each year. 

But why are deposit account interest rates so low? 

Savings account interest rates are low for a few reasons. 

One is that the Federal Reserve (also known as the Fed), which is the central bank of the United States, sets the benchmark interest rate for the country. 

When the Fed lowers interest rates to encourage borrowing and spending, it also lowers the interest rates on savings accounts. 

This is because banks can borrow money at a lower rate from the Fed and therefore don't need to offer high interest rates to attract deposits. 

Additionally, savings accounts are considered a low-risk investment because they are insured by the Federal Deposit Insurance Corporation (or the FDIC), which means that the government guarantees that you will not lose your money if the bank fails, at least up to $250,000. 

Now, this is particularly important as recent bank collapses like the Silicon Valley Bank have scared many people in the market. 

Finally, banks also have other options for investing their customers' money, such as loans and mortgages, which can offer higher returns than savings accounts. 

This means that they don't have to rely on savings account deposits to make a profit, and can offer lower interest rates on savings accounts as a result.

Another Option To Consider

Another investment option to consider is purchasing government bonds, which are securities created by the government to raise funds for government spending. 

For instance, if the government wishes to construct a school but lacks the necessary funds, it issues an IOU that guarantees the holder of the security repayment with interest by the US government. 

I get it, this is an oversimplified example, but it highlights that interest rates have a significant impact on government bonds. 

Despite the risks, government bonds are considered to be one of the safest investments available, as the possibility of the US government defaulting on its loan is very, very low. 

The entire US economy would need to collapse for the US government to become insolvent, which is highly improbable.

Higher Returns

If you are looking to achieve higher returns, such as 10, 20, or 30 percent, then investing in the stock market may be worth considering. 

For instance, Tesla's stock price has surged by over 48 percent this year, while Amazon's has risen by nearly 20 percent, and Nvidia's stock price has skyrocketed by an astonishing 83 percent. 

It's true! 

So, why would anyone choose to invest elsewhere when they could potentially double or triple their money in the stock market? 

The answer is that with higher returns comes higher risk. 

In the case of government bonds, for example, there is little to no risk involved. 

In contrast, investing in individual companies involves a risk that the company may fail or report negative earnings, which can negatively impact the stock price. 

Negative headlines, such as an unpopular product release, can also cause the stock price to fall. 

Therefore, as the potential for returns increases, so does the level of risk involved. 

While Google is a well-established company with lower chances of failing compared to Nvidia, its potential for growth is also limited. 

As a result, Nvidia experienced a growth rate of 83 percent this year, whereas Google's growth rate was only 16 percent.

It's up to you to decide how much risk you can handle without going nuts. 

If you only have $1,000 left, putting all of it into a risky investment may not be the best idea since you could end up losing most or all of it if things go south. 

One way to minimize risk in the stock market is to invest in an index, such as the S&P 500, which follows the top 500 companies in the US. 

An index fund essentially invests in these 500 companies. 

While some of these companies may fail, others will succeed, and based on historical data, the average return rate for the S&P 500 since the 1920s has been about 10%. 

Therefore, buying a share in one of these index funds means you are buying a small portion of the top 500 US companies. 

Three index funds I could recommend are VOO or Vanguard’s 500 Index Fund, QQQ, which is an index fund by Invesco, and FZROX, Fidelity ZERO Total Market Index Fund, all of these are excellent and invest in basically the same companies. 

But where do you begin to buy shares in these index funds?

Where To Buy?

First, you need to find a broker who is qualified to sell you stocks. 

In the past, you would have to call someone and ask them to sell you shares. 

If you have watched the guy from the Wolf of Wall Street? He would spend his entire day calling people and trying to sell them penny stocks which are worthless. 

But thank God we are in 2023, and things are much better and easier. 

Brokerage firms have created apps so that you can buy shares from the comfort of your smartphone, such as Interactive Brokers, Robinhood, Webull, and so on. 

All you have to do is download one of these apps, sign up, and you can start investing right away. 

Simple, right?

I tried my best to make this video as simple as possible so that whoever wants to start investing can begin right away. 

Often, what happens is that you want to start investing, but you have a million questions and start googling this and that. 

And you get exhausted after some time and then you give up and try again a few months later. 

So, I tried to answer all of your questions in this short article. If you found it helpful, make sure to share it with your family and friends.

Thanks for reading and until next time!

- Ivan