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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
Howard Dell' Abate
21 Aug 14 20:31:26
@karenfinerman what expiration date are you buying $SPY ?
Matt Nygaard
21 Aug 14 20:28:44
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Matt K
21 Aug 14 20:28:27
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
MasterTradingSystems
21 Aug 14 20:24:25
Market having melt-up: Dennis Gartman #markets $SPY http://t.co/qDvhNP1a0o
Mark McCabe
21 Aug 14 20:18:00
RT @ChartingStock: $SPY 1st Resistance At New All Time High=$199.76 Support $198.93 $198.08 $197.44 $196.69 Gap=$195.72..Manage Risk $SPX $…
Wavepatterntraders
21 Aug 14 20:17:54
$SPX $SPY Caution for bulls? #elliottwave http://t.co/WGkCTWzNwz
Market Profile
21 Aug 14 20:16:13
RT @StockTwits: “@TheStalwart: No quit in the S&P. Via @danbtig http://t.co/pwd70etT7C” $SPX $SPY
Gubb
21 Aug 14 20:14:39
RT @quanholdingsllc: #COPPER down almost 7% this year #CRUDE #OIL #WTI flat on the year all while interest rates move LOWER $SPX $SPY new …
Brad Moseley
21 Aug 14 20:14:00
RT @SJosephBurns: RT @tradingmemes: U.S.S. Fedaprise via @JPOfutures http://t.co/CXyW41s7g0 $SPY http://t.co/TFsbl8idaB”
Jon Bognaski
21 Aug 14 20:13:58
RT @TraderHMS: You really don`t need Paul Tudor Jones to tell you this, do you? $SPY $QQQ $EURUSD $FB $TWTR $TSLA http://t.co/feYfyNHian
MRMARKETTE
21 Aug 14 20:11:11
RT @quanholdingsllc: #COPPER down almost 7% this year #CRUDE #OIL #WTI flat on the year all while interest rates move LOWER $SPX $SPY new …
Art Vandelay
21 Aug 14 20:09:20
RT @SJosephBurns: RT @tradingmemes: U.S.S. Fedaprise via @JPOfutures http://t.co/CXyW41s7g0 $SPY http://t.co/TFsbl8idaB”
Brad Thoemke
21 Aug 14 20:09:11
RT @StockTwits: “@TheStalwart: No quit in the S&P. Via @danbtig http://t.co/pwd70etT7C” $SPX $SPY
Steve Burns
21 Aug 14 20:07:56
RT @tradingmemes: U.S.S. Fedaprise via @JPOfutures http://t.co/CXyW41s7g0 $SPY http://t.co/TFsbl8idaB”
Larry Lovrencic
21 Aug 14 20:05:02
Members Stock Market Review Ichimoku & Candlestick vid Aug21 http://t.co/66OHvXpqSv $SPY $SPX $DJIA $DIA $NDX $QQQ $RUT #stocks #sectors $$
FXTrader Hub
21 Aug 14 20:05:02
Members Stock Market Review Ichimoku & Candlestick vid Aug21 http://t.co/nI7tLyeafW $SPY $SPX $DJIA $DIA $NDX $QQQ $RUT #stocks #sectors $$
CloudCharts
21 Aug 14 20:05:02
Members Stock Market Review Ichimoku & Candlestick vid Aug21 http://t.co/niEZoJxxeV $SPY $SPX $DJIA $DIA $NDX $QQQ $RUT #stocks #sectors $$
Auto Binary option
21 Aug 14 20:04:07
RT @StockTwits: “@TheStalwart: No quit in the S&P. Via @danbtig http://t.co/pwd70etT7C” $SPX $SPY
Ricochet Asset MGMT
21 Aug 14 20:03:47
#US: Benchmark interest rate may not reach 5% until 2022 #economics #housing #mortgage $SPX $SPY $DJI $QQQ
Ichimoku Charts
21 Aug 14 20:03:39
Members Stock Market Review Ichimoku & Candlestick vid Aug21 http://t.co/dXdL6hOo8K $SPY $SPX $DJIA $DIA $NDX $QQQ $RUT #stocks #sectors $$
VinnyG
21 Aug 14 20:02:17
every textbook approach to trading is done with in this new central bank led world. There is but one strategy #BTFD $SPY $ES_F #WallStreet
Axios
21 Aug 14 20:01:17
RT @RyanDetrick: ISE equity c/p >200 3 days in row N=42 since '06. $SPX returns after very weak. Results here. $SPY http://t.co/I42qVgnpHn
Phoenix Rising
21 Aug 14 20:00:48
RT @RyanDetrick: ISE equity c/p >200 3 days in row N=42 since '06. $SPX returns after very weak. Results here. $SPY http://t.co/I42qVgnpHn
Evener Investment
21 Aug 14 20:00:04
RT @StockTwits: “@TheStalwart: No quit in the S&P. Via @danbtig http://t.co/pwd70etT7C” $SPX $SPY
StockTwits
21 Aug 14 19:59:46
“@TheStalwart: No quit in the S&P. Via @danbtig http://t.co/pwd70etT7C” $SPX $SPY
Urban Carmel
21 Aug 14 19:59:03
RT @RyanDetrick: ISE equity c/p >200 3 days in row N=42 since '06. $SPX returns after very weak. Results here. $SPY http://t.co/I42qVgnpHn
Mark Yusko
21 Aug 14 19:59:00
RT @quanholdingsllc: #COPPER down almost 7% this year #CRUDE #OIL #WTI flat on the year all while interest rates move LOWER $SPX $SPY new …
Mark Yusko
21 Aug 14 19:53:24
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
L.T.
21 Aug 14 19:53:23
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Sri
21 Aug 14 19:51:27
RT @RyanDetrick: ISE equity c/p >200 3 days in row N=42 since '06. $SPX returns after very weak. Results here. $SPY http://t.co/I42qVgnpHn
Terry Kautz
21 Aug 14 19:48:47
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Biz Headlines
21 Aug 14 19:47:22
$SPY: Are U.S. stocks more attractive than emerging markets? http://t.co/KaOgxes6Qx http://t.co/gFMfnNYuTU
Tsachy Mishal
21 Aug 14 19:44:51
RT @RyanDetrick: ISE equity c/p >200 3 days in row N=42 since '06. $SPX returns after very weak. Results here. $SPY http://t.co/I42qVgnpHn
randall millard
21 Aug 14 19:43:52
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Ryan Detrick, CMT
21 Aug 14 19:43:16
ISE equity c/p >200 3 days in row N=42 since '06. $SPX returns after very weak. Results here. $SPY http://t.co/I42qVgnpHn
Forex Insight
21 Aug 14 19:43:05
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Lawful Plunder
21 Aug 14 19:42:46
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Jeffrey Szmit
21 Aug 14 19:42:14
@WSJCentralBanks It's #fed day tomorrow. You know what it is #yellen #JacksonHole http://t.co/1jeD422M8F $spy $gc http://t.co/2XysE8eVcE
SJD10304
21 Aug 14 19:41:11
RT @RyanDetrick: Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten d…
Ryan Detrick, CMT
21 Aug 14 19:40:38
Last two times ISE equity call/put was >200 three days in a row was 1/16/14 and 7/22/11. $SPX down -3.4% and -10.8% ten days later. $SPY
Swing Trade Alerts
21 Aug 14 19:37:08
CNBC:FINAL TRADE: Your first move for Friday, Aug. 22 http://t.co/LLF3sep5lf $RSX $SPY $CRM $GPS http://t.co/MCXLHxC0t3
Nest Egg
21 Aug 14 19:37:00
RT @FA_Hedge: Confidently trade $SPY http://t.co/lMTmHGis51
Gotham City Capital
21 Aug 14 19:35:07
@SolarMelt Wonder if $IBB holds here.. $SPY so overbought.. Won't wee volume tho this week..
Fractal
21 Aug 14 19:30:21
Tell us what you think about this weeks $SPY alert. How are you trading it? http://t.co/jg23s6E1Bv
DayTrading Power
21 Aug 14 19:25:54
$SPY $DIA $QQQ $SPXU $SPXL 4 green days in a row now, 7 if you count last Friday. Very due for a red day.
Stuart Berney
21 Aug 14 19:24:12
“@Shoe_Gone_Bad: Anyone worried about the MACD divergence in $SPY ?” Actually just use the MCAD, not the histogram http://t.co/oAHSS9oO65
Alan Battles
21 Aug 14 19:20:44
RT @waltergmurphy: .25%X3 P&F $SPY hourly close is in its 3rd wave up. 3rd wave is still shorter than 1st wave (by two boxes) suggesting st…
Steve Burns
21 Aug 14 19:18:27
@JoelEnglander $SPY rarely breaches 75 RSI ever & @ 70 RSI it usually at least stops trending & goes sideways.
Steve Burns
21 Aug 14 19:15:59
@JoelEnglander not yet. Better odds with bearish credit spreads at 70 RSI than shorts $SPY
T Hot
21 Aug 14 19:15:26
@JoelEnglander $SPY Housing Starts and Existing Home Sales still weak when looking at past 10 years. I think Feds want people in houses.
				
				
By  +Follow December 25, 2013 8:00AM
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