They say you need money to make money, but everyone needs to start somewhere. So why not now?
With this in mind, we posed the following question to three of our investment planning contributors: "What would you do if you had $1,000 right now?" Here's how they responded.
Selena Maranjian: One good way to invest $1,000, if you're 50 or older, is as a catch-up contribution to a retirement account. (If you're not yet 50, keep reading -- I have a related tip for you, too.) Most retirement accounts have annual contribution limits. For example, in 2015, you can contribute up to $5,500, in total, to one or more IRAs, traditional and/or Roth. But if you're 50 or older, you can contribute an extra $1,000, for a total of $6,500. With 401(k)s and 403(b)s, in 2015 you can contribute even more -- up to $18,000 -- with those 50 and up allowed an extra $6,000, for a grand total of $24,000.
Don't let yourself think a $1,000 additional contribution won't make much difference. Imagine that you're socking money away from age 50 to 65 – a total of 15 years. If you contribute $5,500 each year and it grows at an annual average growth rate of 8%, you'll end up with about $161,000, an impressive sum. What if you make that an annual $6,500 contribution, though, chipping in an extra $15,000 over the 15 years? Well, you'll end up with... almost $191,000.
Now, if you're not yet 50, you're not really out of luck, because few of us max out all the contributions we can make to our retirement accounts. Whatever you're socking away in an IRA or 401(k) this year would serve you even better if it were enhanced by $1,000. And better still, the younger you are, the more that money can grow. A single $1,000 contribution will become $3,170 in 15 years, growing at 8%, but it will become $6,850 over 25 years!
Sean Williams: Sometimes the smartest investment you can make is in yourself. I'd suggest you take that money and put it toward your college education if you don't have a degree, a trade school if you don't want to go to college four two or four years, or perhaps toward trade shows or conferences in your current business field.
It's certainly true that the stock market has returned an average of 8% per year historically, but if you don't have enough money to invest on an annual basis, that 8% return won't matter very much.
According to a Pew Research Center study, millennials ages 25 to 32 with just a high school diploma earned a median of $28,000 per year in 2012. Comparatively, millennials of the same age, but with a minimum of a four-year college degree earned a median of $45,500 per year. Over 40 years, that's a $700,000 nominal dollar difference, and it doesn't even factor in the likelihood of raises, climbing the corporate ladder, or investment potential. It's plausible that the four-year degree millennials could outperform the high school diploma millennials by multiple millions of dollars when all is said and done.
Getting a college education, trade school degree, or gaining knowledge on industry trends in your field of business can make you more attractive to businesses, potentially leading to you getting the job or promotion of your dreams. It's also worth mentioning that college grads also have a far lower unemployment rate than high school grads.
My suggestion: Do yourself a favor and use your $1,000 to hone in on a set of skills that businesses are looking for.
Dan Caplinger: I like to look for investments that the market has beaten down mercilessly, and lately, the most hated sector of the market has been the biotech industry. Facing allegations of overpricing its products and bilking customers and their insurance providers out of too much money, even some of the biggest biotech players in the sector have found themselves the target of criticism and potential future regulation.
Despite this backdrop, though, the extent to which biotechs have fallen makes them look extremely attractive. Although picking individual stocks can be tough in the biotech realm, the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) offers a wide array of some of the biggest names in the industry.
Five key stocks make up 40% of the portfolio, meaning that you won't be overly exposed to smaller players in biotech. At the same time, the ETF holds shares of 145 different companies, which will let you participate in the successes of each to at least a small extent. All told, given the dramatic 25% plunge it has suffered just since July, taking a position in the iShares Biotech ETF offers what looks like a reasonable risk-reward proposition to investors who can afford to take on a volatile sector of the stock market.