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How to Invest $1,000 Safely

By  +Follow December 25, 2013 8:00AM
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One of the best tips a novice investor can get is probably to simply expect moderate returns and to be happy with a lack of volatility. For those investors with a great deal of money to burn, perhaps riskier investments might make sense, but if $1,000 represents a significant chunk of the savings for you or your family, the tortoise approach to investing is probably the wisest course of action. Starry eyed dreams of massive returns is precisely what drove investors into the arms of Bernie Madoff or led them to think the sub-prime mortgage market was the way to go. So, for the investor interested in steady, slow, but most importantly safe returns, here are some simple, very broad, very general pointers that can help get you started.

Bitcoins and Highly Leverage Hedge Funds

Just kidding. Wanted to make sure you were paying attention. These would fall into the opposite category of high risk/high reward. If you have $1,000 you can afford to lose, maybe it's worth doing some research, playing a hunch, and seeing if you can make money where MF Global's (MFGLQ) Jon Corzine failed. However, more likely than not, you don't have the time, knowledge, money, or access to information that the people who play these markets professionally have, so it's probably not worth it in the long run.

Mutual Funds

Ah, here's something simple. Mutual funds are investment vehicles specifically designed for the consumer. In essence, mutual funds pool the funds of many different investors to buy a portfolio of equities, bonds, and money market instruments. Most mutual funds are typically geared towards being very low risk, providing the average small-time investor an avenue to invest their savings that will garner a better rate of return than a savings account while having lower risk for collapse. Because of the pooled money, mutual funds can feature a diversified portfolio that would be difficult to assemble for any individual investor. In fact, most have specific rules, dictated by securities laws, limiting just how much exposure they can have to any one stock or bond.

Picking a mutual fund can be tricky, but most have ample data of the fund's historical performance.

Think of a mutual fund like long-term parking for your car at the airport. It isn't necessarily the most economical place to park your car, but you can feel confident that your car won't get broken into. If you're primarily concerned in your car being where you left it when you get back, long-term parking is the way to go, and mutual funds are a relatively safe place to park your car...er, savings.

ETFs

Exchange-Traded Funds are very similar to mutual funds in that they're a collection of assets pooled together to provide a chance for an investor with limited funds to diversify their portfolio. Investing in any individual stock means taking a chance on a specific company, which can be risky. Just ask anyone who put their money into JC Penney (JCP) last year. However, ETFs are a portfolio of investments designed to mimic the performance of a particular index or sector. This allows an investor to make fairly broad, fairly general bets about the economy without having to do the meticulous research required to find specific companies to invest in and also mitigates the risks of investing in individual stocks.

There are a dizzying array of ETFs available, including those that speculate on commodities futures, currencies, and specific sectors and sub-sectors (have a particularly strong feeling about the future of companies specializing in wind power? Well the First Trust ISE Global Wind Energy Index Fund ($FAN) and the PowerShares Global Wind Energy Portfolio ($PWND) are both specific to the segment!), but the casual investor should most likely avoid these specific ETFs. Broad, index-based ETFs like the SPDR S&P 500 ETF ($SPY) are fairly safe bets over a long enough period of time. The S&P 500 Index has returned 13.5 percent annually over the past 50 years against 11.8 percent for the average mutual fund. Of course, this is no guarantee. Anyone who thinks that 50 straight years of growth means that there's no chance that things can change should ask anyone who was heavily invested in home prices continuing to increase in 2007. However, betting on the S&P continuing to increase at a similar rate over a long enough period of time is still a reasonable bet.

Blue Chips with Strong Dividends

Once again, investing in specific stocks presents an extra level of risk that isn't as present in ETFs or mutual funds. Namely, you've pinned your hopes on one company rather than dozens (or hundreds) and who knows what might happen. However, there are certain massive corporations that have reached a point of relative inertia that makes it hard to see them completely collapsing. While they probably won't offer big upward moves in share value either, they are safer than companies with smaller market capitalization (a number reached by multiplying the total number of outstanding shares by the price per share) and offer a major benefit: dividends.

Dividends are how major companies with little room left to grow bolster their share price, essentially paying profits back to shareholders in cash. These companies are typically in industries with a set demand for their product and a history of performance, like food makers or telecommunications companies. Dividends are typically expressed as a "yield," which is essentially what percentage of your investment will be paid back in the form of a dividend over the course of the year (dividends are typically paid in four quarterly installments, but occationally come in the monthly or annual variety). Any dividend yield of over 5 percent is a strong return on investment, and this can further be bolstered by rising share prices over time.

What's more, dividends can also allow an investor to continue making money even if the share price drops. If you intend to hold a stock for years, as you would for a retirement account, a downturn in share value over four or five years is suddenly a lot easier to stomach if you're still making a consistent dividend income during that time. And you can hold the stock long enough that you have a much better chance of taking advantage of the upswing that's often around the corner for those who are patient.

Dividends aren't certain, companies can and have changed them, but they can offer a path to increasing returns on a longer term investment horizon for anyone willing to take on a little more risk.

"Plastics."

No investment is completely safe, and even the lowest risk bets can ultimately prove a mistake. But any investor willing to forgo dreams of miracle stock-picking and crushing the market can find a number of simple, relatively safe investment vehicles that, with patience, can offer solid returns more often than not.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

Please state any and all relevant disclosures pertaining to the article you are submitting. If none, put "None".


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Results for SPY
Samantha Lee
21 Oct 14 12:24:23
$SPY Cramer called bottom. I think we all know what this means.
TraderJive
21 Oct 14 12:24:13
These markets have been either all in or all out lately. Wow, what volatility in terms of indices moves. Triple digits + most days $SPY $QQQ
MartinB323
21 Oct 14 12:23:47
$SPY 194 http://t.co/T2oStuRR85
Michael Stylianou
21 Oct 14 12:23:38
$SPY wow. How about that? +++ #options #daytrading
Kym L
21 Oct 14 12:23:16
$SPY approaching the .618 of the high to low move (you know that 10% move)
Zubeyr Kamil Açıksar
21 Oct 14 12:22:50
RT @ETFdb: Bulls full speed ahead $SPX $SPY // $XLP $XLU biggest laggards, $XLE $XLV biggest winners
Scott Redler
21 Oct 14 12:22:46
.@treejep @DougKass I did not. Still long and have a $spy hedge on from $193ish Didn't get bigger there yet. Maybe on the bell
Samantha Lee
21 Oct 14 12:22:34
@GuyAdami pls explain why $SPY is up. No one knows the answer to this. Thanks.
Stoyan Bojinov
21 Oct 14 12:22:25
RT @ETFdb: Bulls full speed ahead $SPX $SPY // $XLP $XLU biggest laggards, $XLE $XLV biggest winners
Dawn Rinaldi
21 Oct 14 12:22:17
$IWM $SPY sorry, trader I follow on floor says buy pressure at 90% now and gave the bandwagon analogy. says 1935 what he sees...fwiw
ETF Database
21 Oct 14 12:22:14
Bulls full speed ahead $SPX $SPY // $XLP $XLU biggest laggards, $XLE $XLV biggest winners
Learnstocks101
21 Oct 14 12:22:14
wow $SPY two things I don't want to do here is chase it or short it
Daniel Medina R.
21 Oct 14 12:21:56
Excesivo el ruido que se hizo con el mercado en modo #Crash, ya estamos de nuevo en 1940 $SPX $SPY $FB $TWTR
Noe Perrin
21 Oct 14 12:21:17
$SPY Just ripping higher and higher, Dont try short this market youll get your face ripped off !!
steven spencer
21 Oct 14 12:21:02
looks like many reloaded while i sold 95% of my longs. tmrw should be interesting. $SPY http://t.co/1eN7hDaMUb
nobullshytrader
21 Oct 14 12:20:00
$SPY move iz gettin silly now, yea, we get it, a couple people bought an iphone 6... $AAPL
mektronik
21 Oct 14 12:19:38
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
G
21 Oct 14 12:19:23
$SPY just a squeeze...Remember nothing changed in Europe and things are slowing.Just a matter of time for people to realize we are a global
Stevie B
21 Oct 14 12:19:15
$IWM Todays volume 32M Average volume 72M Don't build a house on sand. $SPY $QQQ $TZA #stocks
Bo Atkinson
21 Oct 14 12:18:39
looking to flatten out these $SPY NOV 189c @ 6.71. cb = 3.32 from last week’s entry.
A Fistful of Dollars
21 Oct 14 12:18:24
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Matt McKinney
21 Oct 14 12:18:18
Full position short $spy 193.90.
Jeff Focker
21 Oct 14 12:18:09
being long is now a pain trade $SPY
Nigam Arora
21 Oct 14 12:17:50
WEEKLY MARKET DIGEST: VOLATILITY IN MARKETS PROVIDE OPPORTUNITIES $GLD $SLV $USO $DIA $SPY $QQQ $TBF $TBT http://t.co/jXLGvtN26W
FireTimCook
21 Oct 14 12:17:33
RT @RedDogT3: @KeithMcCullough let me know when u get your sell signal in the $spy
Scott Redler
21 Oct 14 12:17:19
@KeithMcCullough let me know when u get your sell signal in the $spy
SPY_vrs_SPY
21 Oct 14 12:17:18
$SPY NHOD! Let's see if it slows some ~194...then gets a slingshot move higher!
Marc Eckelberry
21 Oct 14 12:17:06
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Libertarian
21 Oct 14 12:16:58
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Allan Barry Laboucan
21 Oct 14 12:16:52
Market correction is not finished, bullish trend is broken, more downside before bottom in. Careful about buying this dip. $SPY
G
21 Oct 14 12:16:50
$SPY shorts more 193.82
Rick
21 Oct 14 12:16:17
$SPY wrote 10 $195.5 calls at 0.35c +$350 credit.
Thu Real Matt
21 Oct 14 12:16:17
Bots be hungry! $SPY $SPX $ES_F http://t.co/cevcTHxxGe
rockhowse
21 Oct 14 12:16:11
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
KC
21 Oct 14 12:15:39
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Briefing.com
21 Oct 14 12:15:35
RT @TraderInPlay: $SPY $DIA $QQQ & $IWM all push to new Hod in recent final hour of #trading $SPX now +1.9% $NDX now +2.50%
JAIRO SANTELLAN
21 Oct 14 12:15:33
$qqq $spy, why people trying to short uptrend here we are over last week highs !!!
Matt Brown
21 Oct 14 12:15:25
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Alex
21 Oct 14 12:15:07
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
SMB Capital
21 Oct 14 12:15:07
Some stocks our guys are trading: $APT $LIVE $SPY $LAKE $WAG http://t.co/WxZbGwiuWi
Briefing Trader
21 Oct 14 12:15:05
$SPY $DIA $QQQ & $IWM all push to new Hod in recent final hour of #trading $SPX now +1.9% $NDX now +2.50%
Twain's Mustache
21 Oct 14 12:14:54
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Daniel J. Elsa
21 Oct 14 12:14:44
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Chuck
21 Oct 14 12:14:36
RT @philstockworld: #Ebola, #LasVegas, #FuturesTrading and #HedgingStrategies: $SPY $IWM $TNA $TF_F #BeTheHouse -- http://t.co/5NmnD2v4MV
Victor
21 Oct 14 12:14:36
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
RF
21 Oct 14 12:14:35
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Hank
21 Oct 14 12:14:16
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
Toni Turner
21 Oct 14 12:14:16
Wondering how much higher $DIA $SPY $IWM $QQQ can go on such low volume.
WeeklyOptionsTrader
21 Oct 14 12:14:09
This is short covering $QQQ. A good old fashioned short-squeeze in $SPY and $QQQ. Good time to be in cash, or go short now.
NiceTrade
21 Oct 14 12:14:06
RT @nanexllc: 15:12:36 - that was 10K eMini's and $100M worth of $SPY in 2 seconds $ES_F
				
				
By  +Follow December 25, 2013 8:00AM
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