What You Need to Know Before Investing Your First $1,000 in the Stock Market (2024)

Investing is the best way to build long-term wealth. But for newcomers in this field, it can be very intimidating.

If you’ve got some money set aside to invest, where do you even start? The answer is likely the stock market — but there’s a lot to consider here.

What should a new investor know before investing their first $1,000 in the stock market? This article will offer some insights into this topic.

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How Does the Stock Market Work?

The stock market is a public market that allows everyday people to buy and sell stocks.

Stocks represent fractional ownership of companies. If you own one share of Apple, you technically own a very small piece of it.

Companies sell shares to investors in order to raise funds. They do this once, as part of an initial public offering (IPO).

For example, a company may choose to go public and sell 500,000 shares at $10 each, raising $5 million. They could then use this money to fund their operations, invest in new projects, etc.

After the initial public offering, stocks are traded directly between investors. This means that everyone who bought those shares on the IPO day can now buy and sell them with other investors.

Stocks are traded primarily through online stock brokers, like Fidelity or Vanguard. These companies provide the technology required to connect buyers and sellers.

And demand from buyers and sellers influences the price of a given stock. If the company is doing well (or investors think it might be soon), there will be more buyers than sellers — so prices will rise. This is the basic concept of supply and demand.

If you hear someone discussing “investing in the stock market,” they are likely talking about one of two things: investing in individual stocks or investing in index funds.

Individual stocks

Individual stocks are shares in a specific company.

For example, an investor could buy shares in Coca-Cola. They would then own a very small slice of Coca-Cola and would be entitled to a share of its profits (if the company pays a dividend, which is kind of like interest paid to stockholders).

While the dividend is a nice bonus, most investors purchase stocks because they believe the company will grow in the future. They buy in at a certain price because they’re confident that the company will grow or become more profitable. And if that happens, the company’s value — and therefore the price of the investor’s shares — will increase.

You can buy shares of any publicly traded company. This approach carries risk, however. By concentrating your investment in a single stock, you run the risk of that company performing poorly — or even going bankrupt.

If you plan to invest in individual stocks, it’s very important to do your own research and thoroughly evaluate the company as an investment opportunity.

Index funds

Index funds are an investment product that provides a way to invest in many different companies all at once.

For example, look at S&P 500 index funds, like VOO or SPY. These funds invest in every company in the S&P 500 — the 500 largest publicly traded companies in America.

When you buy an S&P 500 index fund, you own very small slices of 500 different companies — including both big names, like Microsoft, Apple, and Ford, as well as smaller companies that you might have never even heard of.

Index funds are considered somewhat less risky than individual stocks. If a specific company performs very poorly, it won’t affect your portfolio much — because you own 499 other companies!

How Should a Beginner Invest $1,000?

For most beginners, investing in index funds is the simplest approach.

An index fund, like an S&P 500 index fund, allows you to invest in essentially the entire stock market. You don’t have to pick and choose your investments; you can simply invest and move on with your life.

Index funds are best because they’re simple, cheap (low fees), and diversified. They’re excellent for passive investing.

If you want a one-and-done approach to investing, simply buy $1,000 of a diversified index fund. Some good options include:

• S&P 500 index funds, like VOO or SPY
• Total market index funds, like SWTSX or IWV

You can buy these funds in any standard brokerage account. Keep reading to learn how to open your first investment account today.

1. Understand your financial standing

Before you invest anything, it’s important for you to take a look at your overall financial situation.

Do you have high-interest debt, like credit card debt? If so, it might be wise to pay that off before you invest.

Are you struggling to meet your monthly expenses? If so, it might make sense to hold off on investing until you are in a better financial position.

Do you know why you want to invest? Understanding your financial goals and intentions for investing can help you make more informed decisions.

Considering your risk tolerance — how comfortable you are with taking on risk in your investments — is also important in deciding on your investment strategy.

2. Open an investing account

Now it’s time to actually open an account. You’ll need to open one of the following account types:

Standard account: Standard accounts offer no tax benefits, but they are very versatile. There are no contribution limits or withdrawal rules to worry about.

Retirement accounts: Retirement accounts, like Roth IRAs, offer significant tax perks — but only if you’re saving for retirement. You may face penalties if you try to withdraw before you are of retirement age.

Not sure what you’re investing for? It’s best to stick to a standard account if you’d like to avoid being locked into retirement plan rules.

Next, you’ll need to decide where to open your account:

Stock broker: Traditional stock brokerage accounts offer a wide variety of investment opportunities, a variety of account types, and quality customer support. Many now offer zero-fee trading, as well. Some low-cost options include Vanguard, Schwab, and Fidelity.

Trading app: Newer stock trading apps are another option. They offer free trading and a user-friendly experience, but they are less versatile in what you can do with them (and what you can invest in). Some trading app options include Robinhood and Webull.

Robo-advisor: Robo-advisors recommend prebuilt investment portfolios to make things even simpler. They charge a fee, however. Some options include Wealthfront and Betterment.

Too many options? A safe and versatile bet is to open a brokerage account with a provider like Fidelity or Schwab.

3. Select your investments

Now it’s time to select your investments. Here’s an overview of your options:

• Stocks: Fractional ownership of specific companies

• Index funds: A way to invest in hundreds of different companies all at once. They are usually structured as exchange-traded funds (ETFs).

• International stocks & funds: Companies that are headquartered outside of the United States

• Mutual funds: Actively traded funds that invest in a variety of stocks, usually following a certain theme. Mutual funds have management fees, however.

If you’re feeling overwhelmed by your options, a simple approach is to just buy a low-cost, diversified index fund. The S&P 500 index is a great option.

4. Invest — and make a plan

Now it’s time to pull the trigger! Simply pull up your investment account, type in what you want to buy, and select the purchase amount. You can select “market” to buy at whatever the current price is, or you can input your desired price and wait until that price is met.

If you do this during trading hours, your order will be fulfilled immediately. If you do it after hours, your order likely won’t be filled until the next trading day.

Making your first investment is exciting — but it should only be the beginning of your investing journey. From here, it’s wise to make a plan so that you can keep growing your assets.

Consider committing to a weekly or monthly contribution to your account. Even if you can only afford $50 or $100 per month, that can really add up over time. Most brokers allow you to set up automatic transfers so that you can set things up on autopilot.

And remember, investing is best thought of as a long-term strategy. Don’t expect overnight results. Keep investing, and focus on growing your wealth over the long term.

Is $1,000 Enough to Start Investing?

Yes, absolutely! No amount of money is too small to start investing.

A $1,000 initial investment put into diversified index funds should earn you around 7% per year or more, on average. Over time, this could result in:

• $1,967 after 10 years
• $3,869 after 20 years
• $7,612 after 30 years

And that’s without making any additional contributions!

For the most powerful investing results, remember to invest regularly. Let’s look at examples of investing $1,000 each year:

• $15,783 after 10 years
• $44,865 after 20 years
• $102,073 after 30 years

Long-term investors find the most success by sticking to their plans and contributing regularly. Whatever amount you can afford to invest, start today — your future self will thank you!

How Can I Learn More About Investing?

Curious to learn more? Check out these useful resources:

• Should I save for retirement, college, or both?
• Should I pay off my mortgage early or invest?
• How to start investing in your 30s
• Intro to the financial planning process

For even more investment knowledge, investor.gov is a great resource.

Conclusion

Don’t let nerves hold you back from making your first investment. It doesn’t need to be complicated. If you want to keep things simple, buying a single total stock market index fund is a great option. Successful investors know that it’s all about consistently investing for many years rather than choosing the perfect investment or the perfect time to buy.

Whether you want to invest for yourself or for your children, now is the time to get started. To save for your children’s future, consider using EarlyBird — the app that makes it simple for parents to set up custodial investment accounts on behalf of their kids.

If you have some savings to get started, now is the time. They say the best time to plant a tree was 20 years ago — and the second-best time is today. The same is true for investing!

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