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Make the Most of $1,000

I'm back with more money ideas designed to unlock the fortune hidden inside your paycheck. This time, we're going to examine what to do with that spare $1,000 you've got lying around.

$1,000 buys you ...
What will a grand buy you? A quick Google search says:

  • 10 minutes of face time with Karl Rove.Double the donation to quintuple the length of the meeting? Sweet!
  • A loaded high-definition DVD player. Great news if you hope to someday become a movie critic.
  • Internet fame and glory! Faux webzine 3-Minute Roast will make you the butt of its best joke every issue. Could a stint on Letterman be next?

Spend it Foolishly
Of course, there are plenty of ways to get more for your $1,000. Like, say, paying off credit card debt. Chances are you have some. Indeed, Americans like me pay 13.14% on an average of $6,250 in debt. And that total may be rising. The Federal Reserve reported in June that revolving debt rose by $6.65 billion.

Scared? You should be. If the Fed stats are correct -- and there's no reason to believe otherwise -- you'll be paying $821.25 in interest over the next year. Unless, that is, you pay down the balance. Use your $1,000 to reduce the principal to $5,250 and you'll cut your interest payments to $689.85, resulting in $131.40 in the bank.

Or invest it Foolishly
And if you're one of those Goody Two-shoes who lives without debt? How about investing in a stock fund. Many have $1,000 minimums and championship choices will charge little for market-trouncing performance.

Consider Fairholme, which has been recommended by Motley Fool GreenLight co-advisor Shannon Zimmerman for his Champion Funds portfolio. Just $1,000 invested in the fund for your IRA would give you ownership of a wide range of stocks:

Company

% of Assets

Berkshire Hathaway A (NYSE: BRK-A  )

14.16%

EchoStar (Nasdaq: DISH  )

10.65%

Canadian Natural Resource

9.31%

Penn West Petroleum (NYSE: PWE  )

6.86%

Leucadia National (NYSE: LUK  )

5.73%

Sears Holdings (Nasdaq: SHLD  )

4.55%

Mohawk Industries (NYSE: MHK  )

4.53%

ITT Educational Services (NYSE: ESI  )

4.19%

IDT Corp.

3.10%

Berkshire Hathaway B

2.21%

Source: Morningstar

Better still, Fairholme has returned an average of 14.99% annually over each of the past five years, according to Morningstar. But, again, you won't overpay for that record. Unlike the average fund in this category, which charges 5.19% upfront to invest, Fairholme sports no commission. Cha-ching! That's $51.90 in the bank.

You'll save each year, too. Fairholme charges just 1.0% in expenses annually versus 1.41% for the more mediocre category average. Check out the difference over 10 years, even when both funds earn the same 10% before expenses:

Year

Fairholme Value

Average Fund Value

1

$1,089.11

$1,084.71

2

$1,186.16

$1,176.59

3

$1,291.85

$1,276.25

4

$1,406.97

$1,384.35

5

$1,532.34

$1,501.62

6

$1,668.89

$1,628.81

7

$1,817.60

$1,766.78

8

$1,979.57

$1,916.44

9

$2,155.96

$2,078.77

10

$2,348.08

$2,254.86

Source: TMF estimates

Ouch! Annual charges alone eat $93.22, which we bank. But we're still not done. Mr. Mediocrity adds insult to larceny when hits you with a 2.67% back-end sales charge, which results in another $60.20 for the bank.

Add it all up and an investment in a champ like Fairholme could save you $205.32 over 10 years. And that's without taking into account the fact that Fairholme, like many champs, tends to pummel its category peers in terms of total return.

Follow the money
With a pair of simple tips, we managed to turn your $1,000 into $1,336.72. That's what we do every month in GreenLight. In each issue, Shannon and co-advisor Dayana Yochim offer a slew of suggestions that will make or save you money. Intrigued? Click here to try GreenLight for free.

Fool contributor Tim Beyers wonders what the world would be like if everything were in high definition. Tim owns shares of Berkshire Hathaway, a Motley Fool Inside Value selection. Get a peek at everything he's invested in by checking Tim's Fool profile. The Motley Fool's disclosure policy is a bargain at any price.


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Tim Beyers
TMFMileHigh

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

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